CONTROLLING THE INBOUND

Like Wal-Mart Stores on the retail side, Procter & Gamble has often driven change from the CPG side of the food distribution industry. About a decade ago, P&G and other leading manufacturers set in motion a change in the way goods are shipped to retailer or wholesaler distribution centers that continues to reverberate today.The change, named streamlined logistics, called into question the practice

Like Wal-Mart Stores on the retail side, Procter & Gamble has often driven change from the CPG side of the food distribution industry. About a decade ago, P&G and other leading manufacturers set in motion a change in the way goods are shipped to retailer or wholesaler distribution centers that continues to reverberate today.

The change, named streamlined logistics, called into question the practice of combining the cost of both goods and distribution into a combined "delivered cost," with distribution considered "prepaid." Why not unbundled distribution costs -- charge just for the true cost of goods and leave the cost of distribution, dubbed "collect" cost, to the lowest-cost solution?

The new scenario, observers said, enabled retailers to take charge of inbound distribution to their warehouses and thereby cut their distribution costs. Privately held Giant Eagle, based in Pittsburgh, is one retailer, among a growing number of others, that has seized this opportunity.

When P&G came out with streamlined logistics, "they were tough, but they made us think," William Parry, vice president of logistics for Giant Eagle, recalled earlier this year in a presentation at Food Marketing Institute's Distribution Conference, held in Kiawah Island, S.C. "In our logistics department, we said they were right."

P&G's initiative led to a new approach to logistics at Giant Eagle, which operates six DCs in Ohio and Pennsylvania. It was an approach, Parry said, that asked, "Can we substitute information for activity? Can we get the information to the folks who really need it to do the work and eliminate touches and steps along the way?"

Over the past two years, Giant Eagle has put its money where its mantra is, investing in a host of technologies aimed at upgrading its transportation logistics division, known as Talon Logistics.

On the inbound side, the biggest investment was in the GC3 transportation software, from G-Log, Shelton, Conn., improving Giant Eagle's ability to control and automate its inbound logistics -- a process that began seven years ago. The system handles everything from collaboration with carriers and load planning to order visibility, event management and freight payment. It allows Giant Eagle and its transportation partners to electronically monitor every part of the delivery cycle and respond rapidly to exceptions. According to G-Log, the software is typically priced at around $1 million.

G-Log is one of several software providers that have emerged to address inbound transportation, including BGI International, Nistevo, LeanLogistics, One Network Enterprises (formerly Elogex), and Manugistics.

On the outbound side (delivery from distribution centers to stores), Giant Eagle added on-board computer systems for its trucks, a dispatching system and an automated fueling system, as well as integration of data across all systems. This article will focus on inbound transportation, while Giant Eagle's outbound systems will be addressed in SN's Oct. 4 issue.

Blowing Up the System

At Giant Eagle, G-Log is now fully rolled out, interfacing with 90 transportation carriers and encompassing all "collect" deliveries of grocery, frozen, perishable, GM, meat, HBC, floral and produce. "It is working well. We are pleased with the results," Parry told SN last week.

One example cited by Parry of how the system has benefited Giant Eagle is its automating of freight payments to carriers. The old system was onerously manual, with Giant Eagle required to match freight bills from carriers to purchase orders. "We said, 'There's got to be a better way,"' related Parry. "Don't tell us what we know. So we blew the system up."

Thus, two years ago the chain installed the G-Log system in what was a 90-day start to go-live project. Today, purchase orders are downloaded into the system every 15 minutes (rather than once per night), routed and optimized, and distributed through the Internet (rather than by fax) to Giant Eagle's carriers. The distribution takes the form of tender offers, which are made to carriers and then automatically either accepted or rejected.

Having determined how raw orders will be structured (such as full truckload, consolidated or multi-stop), the chain then assigns carriers pickup times at vendors and delivery times to its DCs. Some carriers still confirm appointments with vendors, Parry told SN. "We are working on the process for vendor involvement," he said. "We are working to make this fully automatic when we install our new warehouse management system."

The latest version of G-Log's GC3 software, 5.0, to be released in March, will include automated collaborative appointment scheduling, said Mark Johnson, G-Log's vice president of marketing. Tesco and Family Dollar both plan to use this feature, he added.

Once the carrier accepts a tender offer, the information automatically travels to Giant Eagle's payment system. After the delivery is made to a DC, and it enters the warehouse management system, that information goes electronically to the payment system where it is matched and verified. Payment to the carrier follows in 10 to 15 days. In effect, this "autopay" feature is based on proof of delivery.

"We've eliminated freight bills," Parry said. "Some carriers didn't want to do this; they liked freight bills. But this was very important to us."

Working With Merchants

The development of more automated inbound transportation at Giant Eagle has also caused the chain to foster a more collaborative culture within the company, with logistics analysts working closely with merchandising executives. "We decided that since we've got more information than we had before, we need to put it in the hands of folks who can do something with it."

Thus, logistics analysts are assigned to category teams to "help find more efficient ways to do things." There is even cross pollination between groups, as one logistics analyst earlier this year took a position in a merchandising group as a buyer.

The logistics category groups employ analytical tools like shipment counts and vendor scorecards to achieve their goals. Shipment counts list the number of shipments made monthly for each transport mode, including backhauls, third-party shipments, vendor delivery and produce shipments.

Vendor scorecards evaluate Giant Eagle as well as its carriers and vendors on how well they do with on-time deliveries, lead times, turns and fill rates. The information is shared with vendors online. "We try to help merchandising folks team up with our vendors to set goals for everybody," said Parry. In one case, the teams have worked in conjunction with a major national vendor to reduce lead time to less than a day and reduce inventory levels while improving service levels, he noted.

Tesco, the largest food retailer in the United Kingdom, is another user of the G-Log system, which it launched in 2001 as part of a conversion from prepaid to collect (or "factory-gate") pricing for deliveries to its DCs. Johnson said Tesco now receives more than 5,000 shipments daily from more than 500 suppliers in the United Kingdom by means of the system. It has resulted in a 14% improvement in on-time deliveries, a 25% gain in on-time pickup, and a 15% cost saving due to the lower pricing, according to G-Log.

Supervalu, Minneapolis, is another food distributor that has revamped its inbound transportation strategy. The mammoth retailer-wholesaler has gone to a centralized, inbound transportation organization that is orchestrated out of its Minneapolis headquarters. "Instead of training a large group of what may be non-technical individuals scattered throughout an extensive geographic area at every facility, there is a technically proficient group trained in one location," stated Mark Foster, vice president of supply chain for Supervalu, at the FMI Distribution Conference.

Supervalu uses the TMS-2000 application, from BGI International, Olathe, Kan., for inbound transportation. The system, said Foster, handles contract management, freight bill reconciliation and audit, and automatic tendering to carriers. Like Giant Eagle's system, it employs a Web-based interface for tender, acceptance and confirmation. It is linked to Supervalu's buying systems, warehouse management systems, and routing and dispatch applications.

The Eagle's Philosophy

Logistics executives are hard-nosed, practical types who are not prone to philosophizing. At Giant Eagle, however, the logistics department has developed a philosophy about how to employ technology that William Parry, vice president of logistics, described earlier this year:

Technology is not a substitute for strategy. "Technology is part of it, but it would be a mistake to rely specifically on technology to help you solve your problems," said Parry.

Be diligent about ROI. "Once we decide on technology, we will, as soon as practical, take money for it out of our operating budgets, which forces us to be aggressive about achieving those numbers," he explained.

Try not to miss opportunities. "You can spend time developing a strategy and putting together a good ROI case study, but then become too narrowly focused and miss the forest for the trees," he warned. In a facetious but telling example, he said it would be like scientists looking for life on Mars and studying the rocks, but missing the fact that Wal-Mart had a store there. He suggested bringing in someone from another department for a week to look for missed opportunities.

Write is wrong. Logistics managers should review everything they do to see if there is a way to handle information electronically rather than manually.