October 8, 2008
Grocery Wholesalers and Retailers Cutting Transportation Costs
A new report, Transportation Benchmarks 2008, from the Food Marketing Institute (FMI) shows that grocery wholesalers and self-distributing retail chains are taking steps to reduce the amount of money they spend on moving product through the supply chain to the store.
Transportation costs for wholesalers grew to 1.84 percent of sales in 2007, up from 1.59 percent in 2004. That was the last time that FMI tracked transportation costs as a percentage of sales. Among chains, the number rose from 1.66 percent in 2004 to 2.06 percent last year.
“Distributors can’t control the price of fuel, but they are conserving it in virtually every way imaginable. This begins with planning the most efficient routes, limiting trips and loading trucks as full as possible. On the road, drivers are limiting speeds and reducing idling time. On return trips, they are looking for opportunities for backhaul or contract freight. Nobody wants to haul air in rigs that burn more than $4 every six miles,” said Jeff Rumachik, vice president of wholesaler and member services at FMI, in a press release.
One of the methods that some companies are using to improve efficiency is paying bonuses to drivers that reduce fuel costs.
Discussion Questions: Where do you see the greatest opportunities for grocery distributors to reduce transportation costs? Is it time that the supermarket industry made a big push for vehicles that run on compressed natural gas in the U.S. by setting up stations that not only fuel their fleets but consumer vehicles, as well?
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In years past, grocers would build their distribution centers where they had access to rail spurs. Now rail is back in style and I bet they wished they had not chosen to go to the cute industrial parks in the suburbs.
There is a huge opportunity for the self distributing retailers to reduce their distribution costs by implementing “Computer Assisted Ordering” applications for store replenishment that take a much broader perspective of the process than has been traditional. Existing CAO applications tend to look at specific store requirements and do what the assistant department head has done for ever, “Keep the Shelves Full.” Review times and lead times are extraordinarily short, with most stores expecting daily deliveries in at least groceries and possibly other categories.
CAO applications need to take a longer term perspective and consider transportation costs and load building in their order decision process. Instead of ordering to just fill the shelves, CAO applications should also anticipate future needs and include a priority indication so that load building applications can optimize utilization of trucks. Load building applications can then consider available cube and weight to allocate deliveries of ordered and planned (sales program) replenishment. By using the planned transportation schedule to its fullest, the self distributing retailer can minimize the partial loads and emergency deliveries needed to prevent out of stocks.
All this means savings for the self distributing warehouse, but for the wholesaler-served retailer with a “fuel surcharge” clause, there is no incentive for the wholesaler to change the way they do business.
How about cubing out the trailers and reducing or eliminating LTL shipments?
This is certainly nothing new but the current state of the economy and the high fuel costs are putting additional pressure on this component of shipping costs. Rewarding the drivers for savings is a very idea. Scheduling full truck loads and backhauling are also no brainers.
As a side note, this will certainly not improve the out-of-stock positions in the stores. Retailers will be even less inclined to solve an O-O-S with any extra shipping runs or less than carload shipments. Weighing customer satisfaction against shipping costs will be an interesting dilemma for many retailers. I’m guessing the consumer will lose more often than not.
One thing that a lot of grocers are doing now is buying local as much as possible. Most simply cannot replace a fleet of semis with natural gas vehicles but I expect that will be coming soon. When I worked for a large wholesaler, I really enjoyed hearing the stories the executives told about how they tried to avoid having empty trucks on the road.
Saving money on transportation is not a new idea. It’s always been there. Those guys were under an incredible amount of pressure to keep costs down. Using GPS and route planners don’t always work, so many times if you just leave it up to the driver who might know better, paying the driver a bonus on coming up with a better idea should work.
Wholesalers can expand their territories if they know they can back-haul groceries from some warehouse or shipping port. We never considered supplying stores in Mississippi until we realized it was economical if the trucks returned with barge full of produce from Biloxi.
Reducing transportation costs goes beyond just fuel and logistics. Shrink, hijackings, and labor costs are other areas that need constant attention.
Full trucks and gas-saving tactics are important strategies. Shrinking the number of miles covered by purchasing local produce will cut long trips and fuel costs for retailers but may eliminate business for some wholesalers. There is not an easy solution. Transporting goods from where they are produced to where the consumers are is more expensive with the higher cost of fuel. Efficiency of the whole supply chain is still an important criteria to consider.
Best way for grocery wholesalers to reduce transportation costs? Swap territories and customers to get a lot less competitive. Then raise prices and reduce service. Alternative #2: merge with your competition and then raise prices and reduce service. Alternative #3: sell out to the competition and let them raise prices and reduce service. Whether energy prices rise or fall, competition is the #1 threat to profits, 100 times worse than energy prices.
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In years past, grocers would build their distribution centers where they had access to rail spurs. Now rail is back in style and I bet they wished they had not chosen to go to the cute industrial parks in the suburbs.
There is a huge opportunity for the self distributing retailers to reduce their distribution costs by implementing “Computer Assisted Ordering” applications for store replenishment that take a much broader perspective of the process than has been traditional. Existing CAO applications tend to look at specific store requirements and do what the assistant department head has done for ever, “Keep the Shelves Full.” Review times and lead times are extraordinarily short, with most stores expecting daily deliveries in at least groceries and possibly other categories.
CAO applications need to take a longer term perspective and consider transportation costs and load building in their order decision process. Instead of ordering to just fill the shelves, CAO applications should also anticipate future needs and include a priority indication so that load building applications can optimize utilization of trucks. Load building applications can then consider available cube and weight to allocate deliveries of ordered and planned (sales program) replenishment. By using the planned transportation schedule to its fullest, the self distributing retailer can minimize the partial loads and emergency deliveries needed to prevent out of stocks.
All this means savings for the self distributing warehouse, but for the wholesaler-served retailer with a “fuel surcharge” clause, there is no incentive for the wholesaler to change the way they do business.
How about cubing out the trailers and reducing or eliminating LTL shipments?
This is certainly nothing new but the current state of the economy and the high fuel costs are putting additional pressure on this component of shipping costs. Rewarding the drivers for savings is a very idea. Scheduling full truck loads and backhauling are also no brainers.
As a side note, this will certainly not improve the out-of-stock positions in the stores. Retailers will be even less inclined to solve an O-O-S with any extra shipping runs or less than carload shipments. Weighing customer satisfaction against shipping costs will be an interesting dilemma for many retailers. I’m guessing the consumer will lose more often than not.
One thing that a lot of grocers are doing now is buying local as much as possible. Most simply cannot replace a fleet of semis with natural gas vehicles but I expect that will be coming soon. When I worked for a large wholesaler, I really enjoyed hearing the stories the executives told about how they tried to avoid having empty trucks on the road.
Saving money on transportation is not a new idea. It’s always been there. Those guys were under an incredible amount of pressure to keep costs down. Using GPS and route planners don’t always work, so many times if you just leave it up to the driver who might know better, paying the driver a bonus on coming up with a better idea should work.
Wholesalers can expand their territories if they know they can back-haul groceries from some warehouse or shipping port. We never considered supplying stores in Mississippi until we realized it was economical if the trucks returned with barge full of produce from Biloxi.
Reducing transportation costs goes beyond just fuel and logistics. Shrink, hijackings, and labor costs are other areas that need constant attention.
Full trucks and gas-saving tactics are important strategies. Shrinking the number of miles covered by purchasing local produce will cut long trips and fuel costs for retailers but may eliminate business for some wholesalers. There is not an easy solution. Transporting goods from where they are produced to where the consumers are is more expensive with the higher cost of fuel. Efficiency of the whole supply chain is still an important criteria to consider.
Best way for grocery wholesalers to reduce transportation costs? Swap territories and customers to get a lot less competitive. Then raise prices and reduce service. Alternative #2: merge with your competition and then raise prices and reduce service. Alternative #3: sell out to the competition and let them raise prices and reduce service. Whether energy prices rise or fall, competition is the #1 threat to profits, 100 times worse than energy prices.