Managing Complexity While Reducing Costs

Food manufacturers and distributors are coping with the proliferation of SKUs, lack of supply chain visibility and increasing customer demands with technology.


If you take into account the complications that have been added by the multiplication of and differentiation among trade channels, global sourcing, the proliferation of SKUs, and in the last couple of years especially, increases in transportation costs, you realize that all these factors make it hard to see the improvements.

Actually, one of the indicators of the industry’s success in improving supply chain logistics over the last several years, is the fact that companies have been able to manage all this added complexity in their business while holding down costs. Just for costs to remain flat given all these changes, would be an amazing accomplishment and sometimes we fail to give ourselves credit for this.

Chossek: The biggest improvements for us are all around visibility. We work with so many of the bigger retail chains and distributors, even though we’re a small company.

Before, as a small manufacturer, it was darn near impossible to get visibility into where our products were going. But in the last few years all of the major distributors, it seems, have developed portals that allow you to see where your products are moving every month. This enables us to understand what’s working, what’s not working, and what we need to promote.

When we started this company five years ago, that data was very difficult to get. We might have a good month, but we had no idea where that product went. Forecasting demand was an incredible challenge, because we had no visibility into where our product was ending up. It was very difficult to manage promotions, and to make sure product was actually leaving the supermarket shelf.

In the last two to three years, the growing practice by distributors of providing this data to us any time, via internet portals, has been extremely useful.

Sieberg: At Tree of Life, the biggest improvements have come through a concept we started deploying in 2005, which involves opening up our books to customers on how our pricing is developed. We’re doing menu-based pricing: we start with our basic product cost, then layer in different types of services the customer is looking for, so the customer has visibility into where costs are being added to the supply chain.

When we started, a lot of retailers didn’t really want any part of it. By after a year or so, we started to see RFPs coming in employing these same concepts. It’s a win-win, because getting customers to partner with us in addressing how they drive their own costs has really helped us work together to make our combined supply chains more efficient. This has been the most transformational change in our supply chain practice, because it involves changes that cross beyond our organization.

Operationally, one of the main things we’ve concentrated on is enhancing value per transaction. Historically, customers say they need a delivery every day. When they realize that adds 3 percent to the cost, they reconsider and might instead request twice weekly. Then if they can give us a 24-hour delivery window, they can take another 0.5 percent off.

Internally, we’re finding success with our implementation of four regional consolidation centers. When we simulated it, we thought we’d save $2 million a year. We’ve outperformed that by 50 percent, because we’re shipping more volume into those regional centers than we’d projected. They’re allowing us to fill out inbound trailers, which lets us deal with different types of carriers.

Gavigan: For us, one of the biggest changes to help streamline our operation is the use of EDI for purchasing, both for inbound and outbound P.O. transactions. Since I first arrived at J. Kings eight years, ago, the volume of orders coming in every day has tripled. More than two-thirds of those orders now come in electronically, which is probably three to four times the proportion that were coming in electronically back then. The impact is we’ve been able to hold the size of our inside sales department basically steady while sales volume has doubled.

What technologies have provided the most support or impetus to improvements in supply chain operations, in the industry in general, or in your organization specifically?

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for FoodLogistics.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required