Articles

Written by: Darin Cooprider, VP of Supply Chain for Retail/CPG at Ryder

It's been a year since fuel hit an all time high and companies were scrambling to keep fleets on the road and goods on the shelves.  Nine months ago, the economy went south and the jury is still out on when we'll begin the long, arduous climb back to normalcy. However, it's not all bad news. In fact, there are lasting lessons to be learned from an economic downturn and tough times often make better businesses.  There's a lot of change for the better that can be made when everyone is looking to find a way out of a tight corner.

So what lessons are retailers learning from the current volatile business environment? The most recent downturn has clearly highlighted for retailers that traditional approaches taken with suppliers, such as tightening delivery guidelines, increasing shelving compliance and making smaller shipments more frequently to stores, are no longer sufficient to achieve their supply chain objectives for the long term.

As the link between all the stakeholders in the supply chain, an outsourced logistics provider may be the best catalyst for change.  From a third party logistics provider's perspective, there are plenty of opportunities for everyone in the supply chain to work together to drive value creation, improve efficiency, and reduce costs.

Just take a look at the traditional delivery model for soda to a convenience store.  There's likely to be as many as 15 suppliers, making three to four deliveries a week. In theory, this works for the retailer — there's no need to hold inventory at the store level, and high service-level agreements make it nearly impossible for the supplier to miss a delivery.  Often overlooked though are soft costs, like the extra staff needed to accept the delivery. There's risk too. If a supplier's marketing group has a big promotion that hasn't been communicated to the operations team, a retailer may find themselves with empty shelves. The cost of the model to the supplier is apparent — it's not ideal, but in many cases, it's viewed as the cost of doing business.

But when everyone works together toward a common goal, collaboration can deliver so much more than just a way to increase efficiencies.  For one of our largest customers in the CPG space, recognizing that route sales are actually a key component of merchandising was a powerful place to start.  For them, the best solution was a direct-to-store model; of course, eliminating the distribution channel provided cost savings, but the real win came from being much, much closer to their customers — and the demand cycle. For others, joining with other customers in their regions to share warehouse space and fleet capacity is a better strategy. In one instance, we have competitors openly embracing this co-op approach.

By analyzing supply chain networks and identifying opportunities to pool volumes, share facilities, and take advantage of third-party suppliers' economies of scale, everyone will realize significant cost savings, while still achieving outstanding customer service levels.

The key is that in any case, bringing everyone to the table, sleeves rolled-up and ready to wrestle the most difficult questions to the ground often uncovers unexpected — and sustainable — value. What does collaboration look like in terms of real benefits?
Better visibility. Whether the products are in production, in transit, arriving at their destination or ultimately, being purchased, everyone in the supply chain can see them. Increased visibility improves faster decision making and adjustments to the supply chain can be made real-time — saving money or making money depending on what's happening.

Optimized inventory levels.  When everyone is working from a common platform, it's much easier to achieve more accurate fulfillment and replenishment cycles.  Minimum quantity thresholds are eliminated since pooled volume levels are fulfilled across the shared network.  Common platform visibility eliminates the need for buffer stock.

Dramatic improvements in order-to-cash cycles.  It is business after all. When goods move seamlessly and are synchronized over the shared network, and transit and delivery times are clearly tracked to provide triggers for ownership and payment transfers, money gets where it needs to go faster and with more reliability.

All of these benefits are not only relevant in an economic downturn, but also help to better position a retailer to meet pent-up consumer demand when the economy recovers.

Moving to a more collaborative supply chain model won't necessarily be a piece of cake.  Supply chain managers have been doing what they've been doing for decades and change is not easy.  However, while surviving this unprecedented economic downturn will be an achievement for some, those businesses that take this opportunity to evolve and embrace a new way of thinking are the ones that will have a true competitive advantage into the future.

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