Below are informative magazine articles written by our staff:
- Improving Grocery Distribution through Collaborative Vendor Shipping
- Reversing the Flow: Thoughts on Re-routing the Supply Chain of Asian Imports to North America
We hope you find them useful.
Improving Grocery Distribution through Collaborative Vendor Shipping
By Rich Dregne & Jeff Cascini
Published in Progressive Grocer, October 23rd, 2015
Distribution networks that service the grocery sector continue to face escalating challenges in delivering expected service performance at a profit. Manufacturers are increasingly building a better understanding of the costs to service each of their customers and quite often find wide variation due to delivery network geography and order profiles along with product, handling and delivery characteristics.
Carrier capacity has remained tight in many markets, and because many grocery retailers have escalated their focus on reducing inventory levels, there is significant potential for increased pressure on upstream inventory. This has left manufacturers scrambling to find ways to sustainably achieve on-time delivery and high fill rates. Creative approaches are required to reduce total network inventory and delivery costs, while achieving expected delivery performance targets. Companies that can accomplish this will create a win-win solution for themselves and their customers.
Shipment collaboration among manufacturers is a process alternative that could drive efficiencies in the grocery delivery supply chain. This is not a new idea and is already in place in varying forms in some networks today, but has significant growth potential. The most common approach is vendor consolidation by a third party logistics provider (3PL). Under this system, multiple vendors ship into a regional location where the product is stored and subsequently mixed for outbound shipments to grocery stores.
Another approach is for manufacturers to align independently to address specific opportunities within segments of their portfolios. Both of these alternatives can leverage specific characteristics of the different products to drive shipping efficiencies across common customer delivery points.
Under either scenario, combining a high-cube/low-weight shipper with a low-cube/high-weight shipper can create greater transportation efficiencies than could be achieved independently. This can result in significant reductions in freight costs for the suppliers. From the grocer’s perspective, a broader product profile allows full truck order quantities to be met sooner than a single supplier could provide them, resulting in faster replenishment and reduced inventory requirements.
'Collaboration, Agreement and Alignment'
As manufacturers explore these options and look to align with other shippers directly or through 3PLs, they must thoroughly analyze many other factors and engineer them into the process. Critical elements for successful consolidation include product compatibility (content, weight, stack ability), commonality of customer base and ship-to locations, seasonality of demand, product promotion timing and factors that may be unique to either the product or the manufacturer. It will also be necessary to align how and where inventory will be consolidated to support outbound shipments, determine who will manage the inventory and outbound shipping, how warehouse labor and space costs will be allocated and how financial liability for inventory will be handled. These aspects will require collaboration, agreement and alignment in advance to ensure positive operational and financial results.
Risk must also be considered when entering this type of arrangement. Each entity involved is relying on other firms to perform as promised, thus linking its success to theirs. Having strong partners is necessary to mitigate potential problems going forward and, as in any business relationship, formalized processes, procedures and KPIs are required.
While all of this seems daunting, the rewards for successful collaborations can be significant. A robust distribution collaboration process can benefit all parties in the distribution supply chain. Grocers will profit from greater flexibility in building loads, resulting in reduced safety stock requirements and inbound deliveries. Manufacturers will realize reductions in outbound transportation costs driven by better utilization of both cube and weight, and although they will bear the complexity and cost of storing/managing the co-mingling of inventory, the net savings associated with the consolidated outbound freight can potentially be in the 10-20 percent range.
Reversing the Flow:
Thoughts on Re-routing the Supply Chain of Asian Imports to North America
By Kerry Frey & Jeff Cascini
Published in Supply Chain Quarterly, Fall 2015
Over the last decade a slow but steady evolution has been occurring in the underlying costs of international shipping that will have a gradual but profound impact on the entire North American economy. The good news is this: the underlying cost of moving containerized goods from Asia to the Eastern half of North America will drop over the next few years. This will become more apparent when the larger new Panama Canal locks open in early 2016.
Most Asian imported goods today flow through West Coast ports and then are moved east overland by intermodal rail and truck. The new expanded canal, Eastern port dredging, larger ships and other port improvements will partially reverse this flow, allowing more goods from Asia to enter through Gulf and East Coast ports.
There have been and will continue to be growing pains as the Eastern ports adjust to accommodate bigger ships and higher import volumes. Larger ships also mean that each ship brings with it a number of containers roughly equivalent to those carried by three current vessels. These surges in activity will strain ports, warehouses, roads and railroads but the infrastructure will continue to be adjusted because the economics make sense.
How much will container volume grow along the Gulf and East Coast? A recent Journal of Commerce article1 suggested that when the new Panama locks open in early 2016 there will be a “double digit” growth in container shipments via the canal the first year, followed by five percent a year growth thereafter. If these projected growth rates are realized, by 2020 the additional containers handled by Gulf and East Coast ports as a result of the Panama Canal expansion would more than 1.3 million a year2 with other projections foreseeing even more growth.
There are two primary considerations to balance: transit times and cost savings. The additional transit time to ship from Asia to the East Coast through the Panama Canal instead of the West Coast adds anywhere from two to ten days, depending on the destination port. However, there are also delays in the current method of shipping. The ports of Los Angeles and Long Beach, the largest West Coast ports, are near capacity and are experiencing serious congestion and labor issues, adding transit time to the existing cross country time of two to five days. Furthermore, a complex tangle of overlapping rail lines and congestion in the Chicago rail yards structurally adds a day or two of delay to every container shipped through the city (and most do).
The cost difference to ship via the Panama Canal is the major driver for change. Each new large vessel can allocate its operating costs across three times as many containers as current ships, significantly driving down the landed cost per container. Compared to importing via West Coast ports and then transporting containers across the continent by relatively more expensive modes like intermodal rail or truck, transportation by water is hands down the cost winner. The net result is that the cost of moving imports from Asia to the major population centers of Eastern, Southern and Mid-Western North America will drop significantly. It is likely that many companies will decide to accept longer transit times in exchange for these savings.
What effect will this have on life east of the Rocky Mountains? Most likely, it will be a gradual evolution instead of a sudden revolution. More goods will flow through the Gulf and East Coasts to the major population centers along the seaboards and in the Midwest. This will give those involved in port operations, transportation and storage a nice boost; helping regional logistics firms along the coasts expand their reach into the middle of the country. Over time, retailers and distributors will adjust their supply chains by expanding their Distribution Centers east of the Rockies. Since containers also carry materials for production, manufacturing will see a gradual positive impact. Who knows? Some of the savings may even filter down to consumers, in the form of less expensive goods, more jobs and higher per capita incomes. The boost will not be a tidal wave of sudden good times for everyone, but the long-term trend will be positive.
Alas, there are two sides to every coin. The West Coast will see a gradual decrease in the volume of imported goods coming through its ports, transferring to rail and truck for shipment eastward. In the near term this likely will be off-set as the U.S. economy grows and imports pick up. Still, West Coast ports, warehouses, railroads and trucking companies are likely to see volume reduction going forward. On balance the impact on the whole of North America should be very positive.
1. Journal of Commerce, “Drewry: Canal expansion will boost Panama transshipments by double digits”, 19 January, 2015
2. Growth rates projected against 2012 West Coast port container volumes published by the U.S. Maritime Administration, “US Port Calls 2012”