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In 2009, I published an eBook on Collaborative Distribution that made a case that the current model for CPG product distribution is broken. Instead of thousands of product manufacturers managing their own separate lines of supply to the EXACT SAME retail customers, I advocated the creation of a shared warehousing and transportation infrastructure for companies shipping to the same customer base. Despite the enormous potential of such a model to reduce costs and protect our planet, adoption has been slow. Changing long-standing practices is hard.
But last week The Hershey Company (makers of Hershey's®, Reese's®, Kisses® and other brands) announced an alliance with The Ferrero Group (makers of Tic Tac®, Ferrero Rocher®, Nutella® and other brands) that constitutes the highest profile collaborative distribution initiative to date. According to a press release from The Hershey Company, the two multi-billion dollar firms will create a shared warehousing, transportation and distribution model designed to improve supply efficiency, enhance competitiveness, and reduce CO2 emissions.
To be clear, The Hershey Company and The Ferrero Group are competitors. They both sell chocolate products which compete for the consumer's dollar on the retail shelf at locations throughout North America and the world. But supply chain executives at both companies recognized that they DON'T COMPETE on a warehouse shelf or in a truck, and that sharing warehouse space and truck space just made common sense.
This bold initiative will enable retailers to consolidate orders for Hershey and Ferrero products, resulting in fewer deliveries, less road congestion, reduced energy use and more efficient receiving at the retailer's distribution center. Congratulations to both The Hershey Company and The Ferrero Group to be one of the first movers in what I believe will become the standard model for distribution in the future.
Interestingly, this major initiative involves two very large companies. But collaborative distribution holds the most cost-saving potential for middle-market companies that lack the volume to ship in more economical full truckloads. Let's hope this announcement by Hershey and Fererro will be the catalyst for broad adoption of the collaborative distribution model in 2012.