Among small and mid-sized suppliers to grocery chains and mass retailers, few would argue that big retailers are the power brokers in the retail distribution supply chain. But as these retailers push more and more of the burden of supply chain efficiency back upstream, some suppliers feel that retailers are going from just flexing their muscles to becoming bullies on the block.
We found that out in a recent KANE survey on the transportation challenges of mid-sized consumer products companies. One response encapsulates the sentiment of many of the 100 logistics professionals surveyed:
“The retailers are killing us – constantly changing delivery and inventory demands and then imposing punitive actions for non-compliance.”
Most respondents described their relationships with retailer customers as either “superficial” or “non-existent.” So frustrations are exacerbated by having no avenue to voice concerns.
Large retailers have their frustrations, too, and would say that poor routing guide compliance drives up their operating costs and erodes margins
Third party logistics providers (3PLs) can’t erase the alignment gap that exists between retailers and their smaller suppliers, but they can help address some of the practical frustrations that exist – on both sides. In fact, past KANE research on the logistics challenges of mid-sized CPG companies found that the number one strategy for improving compliance with retailers’ transportation routing guides was to use capable service providers. As one respondent put it:
“We are scrappy, detail-oriented, and aggressive as the day is long, but we can only do so much. Experienced 3PLs help us handle major challenges.”
Partnering with service providers who already have leverage with major retailers gives a mid-sized manufacturer more clout than they would have on their own.
Top Retail Distribution Frustrations
Following are a few of the top frustrations voiced in the most recent KANE research, along with ways 3PLs can assist mid-tier suppliers with each challenge.
Top Frustration #1:
Limited delivery time windows and fines for non-compliance
Retailers are no longer just voicing their frustration with late shipments – they’re acting on that frustration and imposing chargebacks for non-compliant shipments. Example: for items that are late or missing during a one-month period, Walmart’s On Time In Full (OTIF) policy states that suppliers may incur a fine of up to 3% of the value of the items.
Many suppliers are crying foul, citing long waits and lack of available resources at delivery points. These problems, they say, make compliance impossible. But at the end of the day, routing guides are necessary to keep product moving swiftly through retail DCs and on to stores.
To comply with OTIF and similar mandates, consider starting with a thorough self-assessment when it comes to your current retailer compliance. How are you doing now before things get even tighter? You can then follow this up with plans for optimization.
Additionally, many 3PLs specialize in CPG logistics and ship daily to Walmart, Target, CVS and large grocery retailers. Based on this retail experience, they are well-versed in routing guide compliance and helping small-to-mid-sized suppliers meet retailer demands.
Top Frustration #2
Retailers are ordering in small quantities to avoid carrying inventory
As more product is in – or on the way to – stores, less product is sitting in a retailer’s warehouse. This is a good thing for retailers, who reduce carrying costs through more just-in-time replenishment. The problem, say suppliers, is that this pushes inventory back upstream, which in turn creates freight inefficiencies and runs counter to green logistics initiatives.
Historically, holding freight to combine orders for the same retailer allowed suppliers to ship in cheaper, full truckload quantities. Today, smaller, more frequent orders means higher freight costs with increased use of LTL, and more trucks on the road, adding to congestion and pollution.
One way 3PLs can assist with this challenge is through load consolidation, which can cut LTL costs up to 35%. 3PLs who serve a dense base of CPG shippers can combines orders from multiple customers that are destined for the same retailers. This keeps products moving, keeps inventory low, takes trucks off the road, and cuts shipping costs for companies that “share the ride.”
Top Frustration #3:
Long unload times
With the current driver shortage, suppliers’ patience is wearing thin on what they view as chronic delays at certain retailer distribution centers. Drivers can get held up for hours, making it difficult to get to their next appointment on time. Because of HOS limitations, the delay may even push that subsequent delivery to the next day.
3PLs that visit the same DCs regularly may be able to leverage relationships established with members of the receiving team to get drivers processed faster. But this is not a solution to the problem.
In a blog on HOS rules and driver turnaround time, KANE’s Larry Catanzaro talked about possible remedies to freight delays at retail DCs, including retailer-established drop and hook programs, which allow drivers just to drop trailers and go.
In a freight market where capacity is getting tighter, retail DCs that do a poor job of receiving and unloading inbound trailers may find that certain carriers won’t want to service that location, choosing to use available capacity for more profitable runs.
That’s not good for anyone.
The Ultimate Solution: Better Communication
Most of the frustrations voiced by shippers in KANE’s most recent research could be lessened by better communication between retailers and their mid-tier suppliers. Research suggests that both retailers and suppliers actually want better communication. But, with literally thousands of suppliers, it’s difficult for retailers to forge close working relationships with everyone.
CPG logistics providers may be able to address some of the issues since they act as the distribution arm of many different suppliers and, therefore, understand retailer requirements well. If you’re a mid-sized retail supplier that wants to improve your retail distribution relationships, contact us today.