Retailers – especially themajor supermarket chains – tend to see their distribution systems as delivering competitive advantage: lean supply chains and the need to speed products from supplier to shelf in ever shorter time frames, are seen bymany as having an impact on profitability. In today’s world, however, this emphasis on distribution as a differentiator is increasingly inappropriate. Major food stores achieve competitive advantage by their product assortment, availability and price – not necessarily by how those products arrive at store.
It is an important point because if we are to achieve sustainable distribution systems, which reduce empty running and optimise our use of declining fossil fuel resources, then we all have to adopt amore collaborative approach to logistics. In the past the emphasis has been on collaboration between trading partners:manufacturers and retailers sharing sales data or demand forecasts – and, occasionally, including their third-party logistics providers in these discussions as well. Such collaborative initiatives have hadmixed success, althoughmid-tier businesses have often proved the more amenable to these developments. Much can be done by improving demand forecasting and real-time monitoring of customer buying behaviour, but collaboration needs tomove beyond these traditional supplier-retailer relationships.
Now, with increased awareness of the requirement to cut unnecessary roadmiles, we need to develop farmore innovative forms of collaboration in the logistics sector: shared transport or warehousing, consolidation centres,multi-user cross docking facilities and so forth. This is vital not just for themajor players in themarket – several of whomare already looking actively at such developments – but also in the growing‘local’producermarket which is dominated by SMEs and convenience stores.
One of themost successful projects that DHL has worked on involves BP and Nisa-Today’s. Importantly BP is comfortable to have NISA branded vehicles delivering to its forecourts. The BP national distribution centre is based in Lutterworth and Nisa-Today’s is in Harlow. By using the cross-dock at Harlow, BP is achieving secondary distribution using Nisa-Today’s vehicles, which can thus deliver both to Nisa- Today’s stores and BP forecourt shops in a single delivery run; there are significant savings for both companies in terms of reduced empty running and fuel costs.
Obviously few retailers would be willing to see a heavily branded direct competitor’s delivery vehicle at their back or front door – but a willingness to explore these sorts of shared solutions is essential, as is a realisation thatmany aspects of the supply chain can be shared without loss of competitive advantage.
There have already been notable collaborative successes reducing empty running by back loading trucks: delivering to a store and then using the same vehicle to collect froma conveniently located manufacturer so that it does not return empty.
We’re also seeing shared transport schemes using non-branded vehicles, but inmany cases – such as with BP and Nisa-Today’s – direct competition is minimal and the benefits of sharing distribution far outweigh any perceived competitive branding issues. It’s an area where logistics service providers can act as a catalyst to help develop collaborative relationships between disparate businesses, which can deliver benefits and encourage sustainable distribution. All 3PLs well know the needs of their various customers and so are ideally placed to identify points of synergy where sharing trucks, warehouses or cross-docks can deliver real cost and resource advantages. Think of 3PLs as holding the strings to a bunch of customer balloons in clashing colours and having the skill and knowledge to sort theminto compatible groups.
If the industry does not strive to develop these sorts of solutions itself then wemay well find European regulatory bodies imposing themupon us.
Inevitably, collaboration generally involves an element of compromise:must the delivery be at 9am every day?Why not 11amor 12noon? Certainly the first day youmake a time change like this there is a disadvantage, but once you’vemade that change the new time is going tomake no difference to processes or performance – especially where ambient or frozen products are concerned. Fresh produce is clearly different, and it is here that we are seeing a large growth in local sourcing.
Consumers – who are drivingmuch of the green agenda – are becoming concerned about foodmiles and regard‘local’as delivering an ethical advantage, much asmany see‘organic’as a benefit. However, ‘local’canmean an increase in roadmiles rather than a reduction, with additional congestion from numerous small delivery vans as well as significant cost and inconvenience for small ormid-tier suppliers.
We’re already working on the local sourcing solution and the implications thatmay ormay not arise fromamove into thismarket, as there is a real need to develop consolidation options and a‘milkround’approach to deliveries. There needs to be collection of the local vegetables, fruit, dairy,meat products or whatever; sortation into drops for each convenience store or supermarket and delivery – after all, no small shop wants seven or eight delivery vans arriving at odd times throughout the day. It takes time to develop collaboration on this scale and it is still early days but I amconvinced we’ll see this sort of consolidation systemdeveloping withmultiple deliveries to city centres reduced.
This need is also likely to encourage interest in urban consolidation centres. Currently, such centres – as at Bristol – have largely focused on reducing town centre congestion and pollution by collating deliveries for individual stores and switching consignments from40-feet trailers to 7.5 tonne vans – ideally hybrid (electricity and fuel) or ones running on pure electricity which aremore suited to city traffic.
With sustainability on every business agenda, then so toomust be new approaches to collaboration – and thatmeans internal as well as external collaboration. Currently inmany organisations, buyers, merchandisers or those responsible for calling off orders work in isolation. The result can be a succession of urgent delivery requests throughout the day with little attempt to collate needs. Sending multiple despatches fromthe same warehouse to a single location each day is no longer sustainable.
Improving internal communications between everyone who orders stock and the logistics teamis vital: a 3PL will do what it is asked but a littlemore emphasis on inter-departmental collaboration could deliver some very real savings tomany businesses.
Fuel prices and congestion charges are beyond the control of any 3PL: we can work to cut empty running and increase the efficiency of our fleets but the only way we can cut these external charges is to reduce mileage – and that can only be achieved through collaboration both internally and externally.
Corporate social responsibility is something that every business now takes very seriously and that responsibility has to extend to sustainable distribution. In future I would expect collaboration to bemuchmore up front and overt with businesses agreeing to work together before they even go out to tender on a project. There are very significant benefits that small andmediumsized businesses can achieve by working together – whether that is by product sector or within a particular geography.
We’ll needmore shared facilities so that manufacturers can still send out a full trailer load, but breaking bulk to satisfy the needs ofmany smaller retailers will become slick and streamlined. As all the major supermarket chains are demonstrating – the convenience sector is hot. Smaller household size and pressure on household budgetsmean that ‘top up’ is becoming farmore commonplace. Inmy experience, themassive weekly supermarket shop is increasingly a fortnightly ormonthly affair with local stores meeting day-to-day needs, often with local produce. Such stores require replenishment by items, not case, and that is a very differentmodel to the one that the big supermarkets have honed to perfection.
It requires consolidation, shared transport and significant collaboration to prevent our town centres becoming clogged with‘artics’and double deckers: and wemust all be aware that if those town centres do become clogged withmassive lorries then regulators across Europe will be introducing even more punitive congestion and pollution charges to keep themaway. Far better for the distribution sector to solve the problemvoluntarily before it is forced to.
DeanWyatt is business director and head of development – food retail, DHL Exel Supply Chain. Email: [email protected]