“The carrier would drive to the food manufacturer’s DC, pick up two pallets, take them back to the carrier’s break-bulk facility where the shipment is offloaded,” explains CaseStack’s Sanker. “Then the products are sorted through and placed on pallets that go out the next day to some other break-bulk facility near the final destination. Then the carrier has to call to make an appointment to deliver to the retailer’s DC. It’s a very convoluted process with a lot of activity involving taking products off trucks and putting them back onto other trucks.
“There is a lot of damage involved in these activities and it means that there could be 50 percent more miles driven to and from the break-bulk facilities.”
Collaborative distribution evolved from the old pool concept, notes Dan Quinn, vice president of warehousing for Milwaukee-based Midwest Refrigerated Services.
“Within the pool concept, products would not be shipped until a shipper collected enough orders to ship a full truckload. But when you are delivering to major retailers and club stores, you really need to be going into their DCs on a scheduled basis,” says Quinn. “If you have to go in on your own, you might be in a smaller weight bracket and you might have to pay a stop charge. You might have a lot of other problems as well because that carrier is only going into that large DC with just one stop and he may lack standing appointments.”
On-time delivery rates using LTL range from 68 percent to 85 percent, reports Sanker. “These are not acceptable rates, especially when we see many retailers charging compliance penalties to cover their extra costs if your products arrive earlier or later than they should.”
This Is Now
Third-party logistics executives admit that the concept of multi-vendor consolidation or collaborative distribution initially might cause some pushback among food manufacturers, who might not want their products riding on the same truck as their competitors’ products.
“But they embrace the idea once they understand the efficiencies,” says Quinn. “Keeping costs down is a big benefit and I think they are differentiating themselves on something other than just service to the destination.”
Kane offers this analogy: “When you take an airport shuttle to a convention, you and your business competitors can all ride together on the shuttle for $10 each—or you can each take a cab at $50 a ride.”
Supply chain collaborators: The real key to successful collaboration rests in how the 3PL handles the process, says Kane. “We are the supply-chain collaborator in that we collect information from the manufacturers relative to their inventory levels, product availability, production schedules and forecasting. We also collect information from their retailer customers relative to their RADs and any other requirements they specify. We synthesize that information and execute to meet the guidelines of both the manufacturers and their retailer customers.
“The visibility we provide gives our customers a high comfort level because they can see their pending orders being collaborated. This is far different from the old model that held their products until there was a full truckload.”
Food manufacturers are continually challenged to remove inventory from their networks, Kane reports. “Cost of capital is a big consideration today. What we offer in collaborative distribution is rather than manufacturers having multiple inventories in multiple facilities, our program houses various inventories under one roof from which we can serve super-regional facilities within a 500-mile area.”
He offers an example of a food manufacturer with six different locations in the Northeast. “They had been keeping duplicate inventories in these various locations, but they often didn’t have the right inventory at the right location. So we consolidated their inventory under one roof.”
The benefit for the retailer is it can go to the warehouse with its own vehicles to take advantage of backhaul opportunities, offering further cost savings. Backhaul rebates from 3PLs can be as high as $750 per truckload, Kane says. For instance, one retailer picks up product from Kane is Able’s collaborative center on weekends because that is when the retailer delivers to its stores. “Most of their vendors are closed on the weekend, so they would have to return empty if they couldn’t pick up a week’s worth of orders at our collaborative center.”