Making The Miles Count

Supply chain scrutiny is fueling cost savings and more competitive pricing for retailers.

Consumers can buy a pound of coffee today at a mammoth discounter, a standalone drug store, a dollar store — even their local supermarket. Competition from national, multichannel, deep-pocketed retailers is putting intense pressure on grocers. As the playing field continues to transform and new contenders enter the game, new technologies are helping grocers optimize transportation costs, and in turn, transfer the resulting savings to offer more competitive pricing and fatten margins.

Several supermarket chains have recently adopted new transportation management technology. For example, Delhaize America implemented transportation tools for all of its banners this summer. The Salisbury, N.C.-based company's Hannaford banner had already been using these tools for three years. Delhaize chose the tools for "efficiency and monitoring of total fleet performance management" of its 780 trucks, according to a company representative.

Checking the Chain

The recession and the introduction of a myriad of technologies have spurred fundamental changes in supermarket business, according to the fourth annual Supermarket Benchmark Survey, conducted by Framingham, Mass.-based IDC Retail Insights. Convenience and price, long viewed as the primary strengths of successful supermarkets, are no longer enough to capture consumers amid wide-ranging competition today. Giant discounters, chain drug stores and even dollar stores are stealing market share from supermarkets.

Retailers are scrutinizing their supply chains like never before with new technology. "Reducing costs and optimizing for agile, efficient and sustainable supply chain operations are driving investments in analytics and dashboard-driven transportation, distribution and inventory management applications," the global research firm reports. With new technology, retailers have the ability to incorporate consumer demand directly into supply chain planning. Transportation is the focus for cost savings, better merchandising and pricing, and even profit center potential for supermarket fleets.

On the Dashboard

"Historically, transportation was handled as two separate silos — operations managed inbound transportation to warehouses differently from outbound delivery of products to stores," says Rik Schrader, SVP, global supply chain division for Plano, Texas-based Retalix — a global provider of integrated software solutions for the food, fuel, CPG and distribution industries. "Now there is more of a shift in attitudes about this separation. Some technology is now available that offers a holistic view, that combines inbound and outbound transportation to optimize the costs inherent in logistical operations."

By lowering operation costs internally, retailers can make better margins, or keep the same margin but offer a better price to compete in the multichannel marketplace. "As you start optimizing and understanding that you can save $300 to $500 per load, you see that this can make a difference on a case cost basis, sometimes 50 cents or $1 a case," Schrader notes. "Previously, a buyer might have been forced to apply additional trade funds in order to cover the cost of product in a weekly or monthly ad. Now there is another way for retailers to bring down the cost, have a better margin and compete more successfully in the marketplace. With these savings, there can still be some trade monies available — it's like having another bucket of money for promotions."

Just as some retailers are saving dollars on outbound deliveries, some are reaping additional dollars from contracted deliveries to other companies, says Schrader. Most retailers are familiar with backhauling — using the same trailer to pick up goods on the way back to the warehouse to lower costs. Optimizing transportation allows grocers to grab more dollars by determining the best way to tackle a less-than-truckload (LTL) delivery, which might load with other orders on a carrier. Bidding out extra delivery space to other companies while still ensuring company product will reach the supermarket distribution center on time can be a profitable option, Schrader notes.

Retailers are looking at changing perspectives, from a buyer or procurement center function in freight management to a logistical position that takes into account opportunities presented by the delivery itself, according to Schrader. Communicating the information gained from new technology tools to both the retailer and the carrier is essential for this to take place.

"Previously, we had seen transportation tools being used in the warehouse or transportation office. Now we are seeing more evidence that these tools are being used as a 'dashboard' in purchasing and buying operations," Schrader notes. "These tools are used in a variety of ways in operations, including allowing buyers to check that promotions have arrived on time without calling the transportation office or tracking down trucks." New transportation management technology can help retailers make decisions more quickly and in a more intuitive way, he says.

Retalix's transportation suite of products offers a best practices dock-scheduling optimization tool. Carriers can schedule inbound loads through a Web portal that's part of the retailer's operation. "We have a community of about 12,000 carriers that participate in the Web portal, which allows scheduling across the country," Schrader observes. "The carrier community finds this to be a good and easy way to do business." The retailer's distribution center can use the tool to block off the appropriate time for deliveries and optimize labor needed for loading or unloading.

Visibility across the enterprise is the trend for the future in transportation management, and allows new options for delivery and product sales, Schrader says. Some retailers are even using transportation tools to schedule loads for delivery outside the United States. "We are seeing many more suppliers going a bit more global, and retailers whose operations used to be solely in the U.S. now pushing out food products to the Caribbean, the northern coast of South America and the Pacific Rim. Some of these deliveries are not necessarily truckloads anymore. They are putting products in containers. Therefore, the visibility factor used in the past to ensure delivery in 24 hours may now expand out two to four days in global delivery.

"We are also seeing movement in several larger retail operations, where transportation departments that have some fleet space available during a certain time are using their fleet like a common carrier for hire," Schrader adds. "Some transportation departments have discovered the product they are delivering to their own stores utilizes only 50 percent of their truck space. They decide to use this space to do backhaul or delivery for someone else in their distribution region, in order to maximize the use of that asset and pick up some extra dollars of profit. This is a different mindset for transportation departments.

"From what we've seen, if you're able to present a transportation manager with not only the opportunity to maximize current deliveries for the retailer, but also to bid on outside opportunities which will allow the department to grow revenue for the company, he will see this as a real opportunity," Schrader observes.

Keep on Truckin'

Retailers with their own fleets aren't the only ones using technology to manage transportation. Third-party logistics providers like C.H. Robinson Worldwide (CHR) "don't sell technology — they sell process improvement," declares Mark Petersen, general manager, corporate procurement and distribution services for the Eden Prairie, Minn.-based global provider of multimodal logistics services, fresh produce sourcing and information services to more than 35,000 customers.

For many supermarkets and other businesses, the bidding process may be a primary means of selecting a carrier, says Petersen, noting that CHR contracts with some 7,000 providers of transportation around the world. "It's good to go through the process, and healthy for the industry, but not necessarily sustainable. Rates go up and down according to the market," he continues. "You need to look at things that are sustainable in the longer term, outside the actual rate on the load." For example, he says, a grocer might send a load from the West Coast to the East Coast, at about 2,800 miles for $7,400 on a truck that will hold 24 pallets averaging about $300 per pallet. However, if the grocer in this example doesn't plan the load accurately to fill all 24 pallets, $600 will be lost. "If you are not optimizing your freight, you might average 22 pallets instead of 24 and be throwing away dollars on the load," he says. "The supply chain has to be optimized in conjunction with the bidding process."

Even small cuts in cost can be well worth the search. In another example, Petersen cites transporting product 1 million miles in the supply chain and finding a way to extract 10 percent of mileage from the overall route. Even such a small drop can result in thousands of dollars in savings.

Optimization of the supply chain must be continual, Petersen says, to sustain long-term cost reduction or cost control measures. It's also critical to look at how you buy, procure and ship, to determine if there's a pattern in the freight component. Consistency can lead to more predictable costs or even opportunities for cost cutting, whereas freight that falls into "transactional" or "shorter lead time" positions can in turn result in premium freight prices, notes Petersen. Removing as much variability as possible from the delivery schedule allows retailers to reap savings on a regular basis.

C.H. Robinson opts to invest in technology in many cases rather than hard assets like trucks, says Petersen. "By connecting all aspects of the supply chain and considering each link, including shippers, warehouse components, carrier transporters and receivers separately to ferret out waste, transportation management technology can deliver reports with actionable items to make the chain more efficient."

A Case for Compliance

Compliance with transportation regulations can also save money. Transportation management technology can help retailers maintain and monitor compliance with new regulations such as the Comprehensive Safety Analysis 2010 (CSA), which builds on the current SafeStat system for measuring fleet safety performance. The new regulations concentrate more directly on drivers' safety and skill than in the past. According to the CSA 2010 website (http://csa2010.fmcsa.dot.gov/), the new measurement system "gives carriers a tool to identify and address unsafe drivers, and provides an opportunity for carriers to fix safety problems before they grow."

Many transportation management technology companies offer tools to check compliance, such as Retalix, which includes this in its yard management suite. C.H. Robinson, as a third-party logistics provider, is already gauging compliance, Petersen says. Eden Prairie, Minn.-based XATA Corp., meanwhile, which offers on-demand fleet software for transportation management to "drive down fleet expenses," is also aiming to "move customers toward 100 percent regulatory CSA compliance and driver safety", according to Christian Schenk, VP, product marketing.

Part of the momentum pushing this transportation technology along, Schenk says, is that noncompliance "imposes a significant risk to the supply chain." XATA is working with fleets, drivers and shippers like supermarkets to create visibility into how trucks are being operated.

"We identified successful factors for CSA 2010 and are encouraging fleets to procure technology today so that they can adjust any bad habits now," Schenk notes. The key to success in CSA compliance, he adds, is driver "'buy-in.' "If the drivers track and trend themselves using the technology, they can see their CSA scores."

With CSA, a driver's scores stay with him, not the fleet. A driver with an unsatisfactory rating won't be able to get employment. According to Schenk, the trucking industry predicts that within the next 18 months, there will be 250,000 drivers pushed from the industry, mainly due to noncompliance. Driver shortages and increases in driver pay will cause increases in commodity prices, a significant trickle-down effect, he says.

The trend in private fleets, including those servicing the grocery industry, is to get ahead of driver issues such as idling, driving too fast and accountability. "They are being proactive because there will be a driver shortage and they will be competing against other companies who need drivers to survive," Schenk notes. "Retailers are and should be thinking now about ways they can pull as much cost out of the supply chain as possible to compensate."

Schenk says his company asked 17 fleets what their No. 1 reason for buying technology right now is, and all cited CSA. "They need to do electronic logs to track costs. Fleets are gravitating toward any tools that will help them eliminate costs, risks, manage speed, eliminate dangerous right-hand turns, etc., and provide visibility."

Optimization of the supply chain must be continual to sustain long-term cost reduction or cost control measures.