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ECR UK has gathered the views of several retailers and manufacturers to provide a perspective on the development and direction of their distribution consolidation activities.
The Retail Perspective >
The Manufacturer Perspective >
The Retail Perspective
Objectives:
With retailers aiming to provide a responsive and cost effective route to market, their distribution consolidation objectives fall broadly into two areas:
- Financial improvement - Driving the opportunity for EDLP (and similar), through reduced inbound transport costs and better working capital (as a result of reduced depot stockholding).
- Flow improvement - Driving increased availability, reduced inventory, increased responsiveness, increased capacity, service improvements, increased transport utilisation, support JIT operations.
Approaches:
The overall approach should provide a responsive and cost effective consolidation infrastructure which benefits both suppliers and retailers. It should be flexible and dynamic, supporting JIT operations to better service depots and stores for the ultimate benefit of customers.
Depending on the objective of consolidation the specific approach can vary:
- In the case of consolidation driven by financial improvement, the focus is on the solution itself. Retailers tend to migrate vendors into their own preferred solution in order to realise the benefit. In this case the solution and outcome are inextricably linked.
- In the case of consolidation driven by flow improvement, the focus on the desired outcome. In this case there is no need for Retailers to use their own solution to realise the benefit, although many will have one available if required. In this case the solution and outcome are disconnected.
Solutions:
There are both similarities and differences in the consolidation solutions employed by different retailers and the level to which they get involved in the solution. Below are some of the key themes.
- Retailers tend to operate dedicated networks for chilled and produce.
- Some retailers, such as ASDA, have no dedicated MDC's for ambient, they instead prefer to build on existing operations; either manufacturer or retailer driven. Others, like Sainsbury’s, have an in house consolidation network. There are also those who operate a combination of dedicated and shared user networks.
- The level to which visibility of stockholding is required differs by retailer, with Sainsbury’s requiring full visibility across their complete supply chain. The aim being to facilitate communication and improve availability in store
- In many cases, provided that the required levels of control and visibility are maintained, retailers are willing to push products other than their own through their consolidation networks.
- Retailers, through collaboration with their suppliers work to achieve mutual benefits both in terms of financial benefit and improvements in the operational flow.
If you are interested in understanding more about a specific retailers preferred consolidation solution, please contact ecr@igd.com and we will put you in touch with the appropriate retailer contact.
Commercial Considerations:
There are different commercial options available depending on the particular consolidation solution;
- Where consolidation solutions are aimed at driving financial improvements, the preferred commercial terms tend to be "collect" terms i.e. factory gate pricing. This is for the purpose of long term simplicity and low ongoing admin requirement.
- Alternatively, when consolidation solutions are aimed at driving flow improvements, the terms tend to be flexible to suit each individual case depending on circumstances, and can be either “collect” or “recharge” terms which see invoicing/payments based on services used.
The Manufacturer Perspective
Objectives:
The objective of distribution consolidation from a manufacturer point of view is to maintain or improve one of:
- cost
- service
- sustainability
without negatively impacting on the other two.
The use of consolidation networks is a useful way to provide a flexible and agile supply chain, as required by retailers, without driving cost or compromising the sustainable distribution agenda.
Consolidation also provides manufacturers with the ability to move quickly into a market where they don’t have the expertise, to “buy into” a supply chain solution. For example, when introducing new products, moving into new categories or into new domestic or international markets.
Consolidation solutions can also be used to reduce the complexity which comes with producing and supplying some products, for example MU’s, different temperature regimes etc.
Solutions:
Since manufacturers supply to a number of retailers, they prefer consolidation solutions which cross multiple retailers rather than retailer specific solutions. This avoids the complexity caused by operating different solutions with different retailers.
The level of control and visibility which some retailers require from consolidation solutions would be an area of concern to manufacturers, since retailers do not have visibility of stock levels within the manufacturer network.
One important consideration, particularly for smaller suppliers is that they have affordable access to consolidation solutions, these are the businesses who due to their scale are most likely to ‘buy into’ someone else’s consolidation solution.
If a solution does not deliver the required benefits, it is important that parties can extract themselves from the current solution and source an alternative.
Commercial Considerations:
When it comes to the commercial arrangements for consolidation options manufacturers prefer to pay for the service used and not have the cost included within the product price (i.e. preferring ongoing invoicing and payment to FGP type commercial arrangements).
Since in some cases the retailer will be a customer, as well as a service provider, it is important that processes and controls are in place to support when things to wrong, and the role of the manufacturer and the retailer are reversed: the manufacturer being the customer of supply chain services and the retailer being the service provider, without impacting on the ongoing commercial arrangement.
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