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Consumer Goods Logistics Blog


5 ways to reduce logistics costs in consumer goods distribution

Published by Alex Stark on March 19, 2015

Consumer packaged goods (CPG) companies are getting squeezed. On one side, your retail customers want smaller replenishment orders more frequently. At the same time, your own company is pressuring you to reduce logistics costs.

The dilemma is particularly difficult for mid-sized CPG companies that lack the resources, systems capabilities and freight volumes larger competitors use to drive efficiencies.

CPG Logistics One solution could be working with a third-party logistics provider (3PL) that specializes in getting consumer goods to mass retailers and grocery chains. The right 3PL partner can help smaller firms generate big savings without major capital investments.

Here are five ways mid-sized CPG companies can leverage a 3PL to compete and win:

1. Consolidate loads with like shippers (even competitors!) to reduce logistics costs

Since they lack large freight volumes, smaller companies must use higher-cost, less-than-truckload (LTL) shipments.One way for these CPG companies to level the playing field is load consolidation with other CPG firms, even competitors, moving to the same customers. This shift from LTL to lower-cost, full truckload moves not only reduces your freight rate, but you would be responsible for only your share of the lower-cost move.

3PLs that handle many consumer goods clients are in an ideal position to enable this strategy. What kind of cost impact could consolidation have?  Here's an example:

Impact of Load Consolidation on a Mid-sized CPG Manufacturer

  • Annual LTLspend:  $632,000
  • Spend for same volume of freight after consolidation:   $467,680
  • Annual freight savings:   $164,320

2. Integrate Data from Sales and Fulfillment Systems

Allocating available inventory against current orders creates problems. There’s no algorithm to automate this subjective decision process. The allocation decision also invites personal bias, as customer service and sales representatives may steer available inventory to their own customers.

One solution is better integration of sales and inventory data. While this could be a barrier for smaller companies with limited systems resources, many 3PLs have the experience and resources to integrate data from multiple systems to facilitate decisions. When combined with the company’s unique knowledge of the retail customer, decisions can made based on customer priority, not a “first-in, first-out” model that risks disappointing key customers.

3. Cross-dock Freight

Cross docking is another way small and mid-sized CPG companies can move to more of a just-in-time inventory model. It’s a proven strategy,but many CPG companies don’t do it because, frankly, it’s not easy. Effective cross-docking requires:

• Visibility to factory production and inbound freight
• Advanced systems to marry orders with inbound freight
• Tight coordination with carriers

Smaller CPG companies often lack the systems and resources to effectively manage the process. The right 3PL, on the other hand, has the systems, the know-how and the specialized facilities to jump-start a cross dock strategy and reduce logistics costs.

4. Package Product in the Distribution Center

Retailers don’t necessarily want to sell products in the same configuration as they leave the factory. For certain markets, they may require different quantities in a pack, or different product configurations altogether.

So, where does this customization happen? Many CPG companies still ship product from the DC to outside packaging firms only to have the product return to the same DC. This increases freight costs and causes the company to lose visibility to the product during the packaging process. You eliminate these problems by performing secondary packaging services and other product configuration at the 3PL-operated DC.. 

What’s the benefit of integrating distribution and packaging functions? A 10%-15% savings is possible based on reductions in freight costs, inventory and damage.

5. Reduce Chargebacks

Large CPG companies have internal departments that monitor chargebacks. But small and mid-sized companies don’t have the resources to focus on chargeback reduction, so they often accept chargebacks as a cost of doing business. For these companies, an experienced 3PL can be their ticket to huge chargeback reductions.

Logistics companies that ship for multiple CPG manufacturers know retailers’ requirements and can police outbound shipments to assure compliance. 3PL input also can be valuable in accessing the data needed to assure the accuracy of the charge and support penalty challenges.

Reduce logistics costs with a virtual logistics capability 

More and more consumer product brands have become part of multi-billion dollar companies who use supply chain synergies to increase their cost advantage on the shelf. This industry consolidation makes it more difficult for small and mid-sized CPG companies to compete.

But partnering with the right logistics provider can level the playing field, giving you "big company" logistics capabilities without the overhead.   

 

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