Two of the hottest retailing concepts of 1997, home shopping and home-meal replacement, had strong effects "behind the scenes." Supply chain executives had to deal with the complex logistical issues of moving smaller, often perishable product units key to these categories.
The effort to employ activity-based costing and management in supply chain operations also picked up steam in 1997, with some distributors extending ABC concepts to employee compensation. For others, a close analysis of their costs encouraged them to try outsourcing specific functions.
Technology played an increasingly important role, especially in the use of warehouse management and routing systems to improve inbound and outbound logistics.
Here are some of the supply chain and operations highlights of 1997:
Companies Focus on
This year, several companies came to terms with the reality that picking, packing and delivery of product -- each of which can dramatically drive up costs -- play a huge role in determining profit or loss in offering home shopping.
Logistics solutions adopted by both retailers and third-party companies included use of wearable scanning devices that check the picked item against an order to help reduce mispicks.
In addition, several firms moved toward establishing dedicated home-shopping fulfillment centers. These not only allow for more efficient picking operations than are possible with in-store picking, they also avoid out-of-stock problems in the stores.
Strains Supply Chain
The growth of home-meal replacement began to make its mark on the supply chain as well as on retailers and consumers.
Distributors this year had to wrestle with everything from making more space in already tight warehouses to analyzing delivery schedules to ensure that fresh items got to store shelves in a timely fashion.
Complicating these issues was the fact that some distributors discovered they did not have the proper systems installed to track and bill HMR orders.
Supervalu, Minneapolis, for example, found that HMR fulfillment in the warehouse involved hand-carrying specialty items to racks and searching the docks to combine an item with an outgoing order -- processes that added cost and inefficiency to the distribution process.
Among the solutions discussed by the wholesaler's executives at 1997 industry conferences are improved tracking systems for timeliness, invoicing and payment to multiple vendors, and accounting systems to track profitability. Supervalu is also in the process of developing a systematized approach to cross dock specialty items.
For other distributors, a central kitchen to prepare meals provided some answers. With weekly forecasts from its stores, a retailer can do basic ordering and labor projections. Food can be turned quickly enough so that most of it is less than 12 hours old before it arrives in its stores, said Tom DeVries, director of food service at D&W Food Centers, Grand Rapids, Mich.
And Management Expand
Activity-based costing and management, processes that help determine the true costs of specific business practices, continued providing the basis for improved supply chain efficiency.
For example, Spartan Stores, Grand Rapids, Mich., which began work on activity-based costing two years ago, announced that its Cost Plus program, which charges retailers based on actual costs and services used, helped it cut average store delivery time by more than 20 minutes.
By combining ABC with continuous replenishment, Giant Food, Landover, Md., saved nearly $1 million in inventory costs in six months' time, according to Tom Schmitt, senior manager, financial planning and analysis.
Another area of ABC that saw increased activity in 1997 was activity-based pay. Distributors see ABP as a way to achieve savings in labor-intensive areas such as transportation.
Fleming Cos., Oklahoma City, for its part, is currently using ABP compensation methods at its facilities in Lubbock and El Paso, Texas, as well as Nashville, Tenn., which all employ nonunion drivers.
Outsourcing Tied to
Need for Expertise
As distributors took a closer look in 1997 at what specific activities cost them in terms of labor and other expenses, several decided that outsourcing was a viable alternative.
Prime outsourcing areas in 1997 included transportation, distribution centers, store supplies and energy services. The last item became an especially hot topic this year.
With utility costs acknowledged as a retailer's largest operating expense after labor, and energy deregulation already beginning in some areas, companies saw an opportunity to lower their costs by using the analytical tools of third-party energy service providers.
Retailers, such as Ralphs Grocery Co., Compton, Calif., anticipate that working with energy services providers will help cut electricity costs and improve efficiency through consolidated billing.
Interest in computer systems for improving both inbound and outbound logistics was fueled by the requirements of expanded retail categories such as home shopping and HMR, along with a continuing industrywide demand for greater supply chain efficiency.
Cost cuts came through for those who used computerized routing systems. At Shaw's Supermarkets, East Bridgewater, Mass., for example, a new outbound routing system resulted in reduced hauling miles.The retailer also explored the possibility of a new inbound routing system this year.
Cross docking also was high on distributors' activity lists because it reduces the handling of product and stored inventory in the warehouse, resulting in reduced labor costs.
But reaching true cross docking, with pallets arriving on one truck and being shipped out immediately, is still a work in progress in the industry.
To reach ideal cross docking, electronic data interchange and advance ship notices are needed to better track product movement through the supply chain.