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Consumer Goods Logistics Blog


Why is the Purchasing/Logistics Disconnect a Problem for Retailers?

Published by Alex Stark on June 26, 2014

Retailers today face an opportunity to save millions of dollars a year, simply by fixing a structural flaw built into most retail supply chains. That same fix can drastically lower carbon emissions.

The problem is that large retailers have thousands of suppliers, each managing its own transportation to the same distribution centers (DCs). That’s an inefficient practice, marked by excess expense and inefficient freight transportation.  This problem, along with a solution, is discussion in detail in KANE’s latest paper on retail shipment consolidation

The below graphic shows what the problem looks like on the left and then, on the right, how collaboration can streamline the movement of goods to retailers. 

Purchasing/Logistics Disconnect is a Problem for Retailers

 

When you leave suppliers in charge of their own transportation, many must use costlier less-than-truckload (LTL) shipments.  And guess what?  They pass these costs to the retailer in the purchase price.  Some suppliers may even pad these transportation costs to earn some additional margin.

This model also increases the retailer’s operational costs. Trucks coming from suppliers in the same region hit retailer docks at the same time, causing traffic jams at loading docks and making it difficult to schedule labor to handle unpredictable inbound volumes. 

What’s the solution?  For one thing, the retail buyers and logistics specialists need to get together and discuss how each group’s actions affect the other. But most retailers do not mandate a strategy to have the two departments work together to reduce overall costs and carbon emissions.

Buyers focus upstream.  Their job: purchase products at the lowest price. 

Retail Logistics is focused downstream.  Their job: arrange timely, accurate delivery to the stores.  They do not tend to focus on optimizing the inbound flow because they perceive it as something over which they have little control.

Why is the Purchasing/Logistics Disconnect a Problem for Retailers?

  • Excess traffic and costs at the receiving dock. 
  • Excess carrying costs. LTL shipment arrival times are notoriously unpredictable. To avoid stockouts, retailers have to tie up cash in extra inventory.
  • Large carbon footprint: When each vendor manages transportation on its own, it takes many more trucks to deliver the goods than if you consolidated those shipments.

The solution is to adapt the current model so that the same volume of goods is delivered on a set schedule in fewer, fuller shipments.  That solution can take a few forms:

  • Shared vendor DC: Two or more suppliers occupy the same building and combine shipments to mutual customers.
  • Multi-stop truckloads: A single truck picks up product from multiple suppliers and then delivers a full truckload to a retailer’s DC.
  • Consolidation centers: Suppliers deliver product to a DC or crossdock run by a third-party logistics provider (3PL), which builds full, multi-vendor truckloads for delivery to the retailer’s DCs.

Using an experienced 3PL provider may be the easiest way to capitalize on consolidation opportunities for inbound freight moving to retailers.  Find a 3PL that can combine freight with other customers shipping to the same retailers. 

Check out our retail freight consolidation paper for full detail on the benefits of greater logistics/buyers collaboration.  For more information, contact us on the web or call 888-356-KANE (5263).

 

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Purchasing and Logistics Disconnect