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Consumer Goods Logistics Blog


Share Product Distribution Costs and Win

Published by Alex Stark on March 05, 2015

From the age of one, our parents taught us that sharing is good.

share_iconBusinesses have learned the same. Here are examples of how they translate sharing into profit every day:

  • Companies create purchasing cooperatives to reduce the costs from suppliers that they have in common
  • Different business units of a company decide to share services, like HR, so they don't have to operate redundant departments
  • Cell phone companies share the cost of cell tower usage by paying third parties who own and manage these towers

But, for the most part, companies don't share product distribution costs - despite the fact that many are shipping to the exact same retail customers on a daily basis. We discuss it in our eBook, "The Power of We." 

Bad Things Happen When You Don't Share

  • You pay more for freight. Smaller shipping volumes force mid-market companies to use higher-cost LTL carriers. Co-loading with fellow shippers allows you to share the cost of a lower TL rate.
  • You pay more to store inventory. If you operate your own distribution center, you'll pay 5% - 15% more than co-locating inventory in a multi-client, 3PL-operated warehouse.
  • Your retail customers become inefficient. When goods from five suppliers arrive in five different LTL deliveries, retailers' labor costs are higher to receive the goods, particularly since unpredictable LTL delivery schedules make planning difficult.  
  • You increase the carbon footprint of your supply chain. Consolidated deliveries take trucks off the road. When you don't proactively seek freight consolidation opportunities, you pollute more.

A Better Product Distribution Strategy

In an ideal collaborative distribution environment, consumer product manufacturers consciously co-locate inventory in shared warehouses run by neutral 3PLs, who serve other companies shipping to the same retailers.

Retailers would then change their purchasing processes. Instead of letting buyers order separately from hundreds of different suppliers, the retailer would instruct buyers to create consolidated orders for suppliers whose inventory is located in the same 3PL-operated DC.

The 3PL would process orders and ship them out as single TL shipments, equitably parsing out freight costs based on the percent of the consolidated load each supplier's product represents.

There's some coordination involved here. But the right 3PL has processes and systems to act as a clearinghouse for all communications - receiving retailer orders via EDI and confirming receipts and shipments to individual suppliers. 

Sharing Product Distribution Costs Has a Big Payoff

Consumer goods companies can shave as much as 35% off distribution costs by shifting to a more collaborative model. Most of that savings will come from a shift from LTL to TL shipments.  The balance comes from sharing warehouse overhead costs, flexing space and labor based on volume, increasing turn rates and reducing the time and expense involved in carrier payments, which the 3PL now handles.

Take the first step. Look for opportunities to place your inventory with 3PLs who serve other companies shipping to the same retailers and grocery chains as you. You'll find that your parents were right - sharing is good.  

 The Power of We

 

Filed under: Collaborative Distribution