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Warehouse Operations

5 cost savings product distribution strategies.

Alex Stark | June 04, 2015

Has your consumer goods company altered product distribution strategies to drive down logistics costs?

Are you exploring strategies that change current processes and the way you work with retail customers?

1427406951_shopping-cart-128Following are five distribution strategies for consumer goods manufacturers to consider -- some new, some tried and true. They are taken from a longer Viewpoint paper: "Strategies to Reduce Logistics Costs in the CPG Supply Chain," which includes additional details.

1) Drop ship eCommerce orders on behalf of retailers

Today, retailers fulfill eCommerce orders from their current distribution network, built for replenishing stores with pallets and truckloads of product. But this VENDOR-to-RETAILER-to-CONSUMER supply chain is inefficient, with extra touches and freight runs, higher inventory, and slower cash cycle times. As an alternative, consider fulfilling your retail customers’ eCommerce orders directly from your distribution centers. The benefits of this distribution strategy include reduced touches and damage, fewer freight runs and reduced inventory based on shorter order cycle times. 

2) Ship factory direct

CPG companies save when they bypass their own DCs. So, why not incent retail customers to order specific SKUs to ship direct from the factory? It’s a win-win. Retailers get the product faster at a lower price, while you avoid significant freight, storage and labor costs. What’s the savings potential? A plant that ships 400 orders a day could save around $750,000 from this one location, assuming 25% of these orders could ship direct.

3) Provide logistics input on packaging design

Today, packaging decisions at CPG companies are made upstream by sales and marketing departments, with no real involvement from logistics and contract packagingprofessionals. As a result, a CPG company’s total costs can become inflated due to inefficiencies during the final phase of assembly and delivery. For instance, one flashy point-of-purchase display took close to 25 hours to build. To avoid downstream inefficiency,logistics must demand a seat at the table when packaging and point-of-purchase display design is being discussed.

4) Cross dock a portion of freight

Cross docking is kind of like an HOV lane for fast-moving freight for which there is steady and predictable demand. Product hits the receiving dock and is quickly loaded onto another truck for final customer delivery, avoiding the time and costs involved in storing and handling product at the warehouse. As far as product distribution strategies, cross docking is regarded primarily as a retailer strategy. But many of the benefits of cross docking are available to CPG manufacturers.

5) Collaborate with retailers and 3PL partners to consolidate freight

Load consolidation combines LTL freight from different companies moving to the same place in order to leverage lower-cost truckload rates. But this activity is ad hoc and occurs only if a 3PL or carrier recognizes consolidation opportunities. For small and mid-market CPG manufacturers moving to regional grocery chains, far greater cost saving opportunities are available from collaborating with retailers and 3PLs on a different process for replenishment – one based on a retailer combining its orders to multiple smaller vendors into a single purchase order.

Strategies to Reduce Logistics Costs in the Consumer Goods Supply Chain