It has been said that an army marches on its stomach. When the force is as huge as the U.S. military, with millions of active and reserve servicemen and their families spread across hundreds of bases throughout the world, filling such a stomach becomes a monumental task Nash Finch Co. has carved out a significant role in handling this duty. Over the last 15 years, it's grown into the largest distributor of grocery products, by revenue, to commissaries operated by DeCA, the Defense Commissary Agency.
From its military food distribution division (MDV) headquartered in Norfolk, VA, and four other locations around the country, the wholesaler supplies approximately $1.3 billion worth of product annually to more than 350 U.S. military commissaries and exchanges in the United States and overseas in Europe, Puerto Rico, Iceland, the Azores and Honduras. The business accounts for about a quarter of company sales.
Supplying U.S. military commissaries is a lot like servicing the food retailers that make up the rest of Nash Finch's business, says Jeff Poore, senior vice president, military, for the wholesaler. But, he adds, there are key differences.
Among them are the size and scope of the commissaries themselves. "Stores average $20 million a year in sales, and that is measured at cost," Poore points out. "Applying normal retail margins, the average commissary equates to a supermarket with $25 million to $30 million in annual sales."
This figure excludes most of the general merchandise, such as greeting cards, beer and wine, toys and other items carriewd by other grocers today. The commissaries are congressionally mandated only to sell grocery food products, health and beauty items and a limited number of other goods, such as batteries and flashlights.
Another difference is in the way relationships are structured among the segments that comprise the military supply chain.
anufacturers contract directly with DeCA to supply product. The manufacturers, in turn, contract with Nash Finch to deliver their products to the commissaries. This difference in the relationship between manufacturer and distributor leads to some major distinctions for military business in both semantics and procedure.
"In the normal wholesale world, the manufacturer is the vendor. In our world, manufacturers are our customers. One reason we operate the military division as a separate business unit is to insure we keep this distinction clearly at the forefront at all times," Poore comments.
In reality, MDV serves a "three-legged" customer base, he adds, including the manufacturer community, food brokers that represent them, and DeCA and the military families it serves.
With so many separate customers involved in each transaction, it's not surprising that Poore characterizes military distribution as, above all, based and focused on customer service.
The definition of customer service for MDV ranges from providing access to aggregated sales and other data to manufacturers and brokers, to managing security clearances for all Nash Finch employees, to putting together special packages on short notice for direct airlift to overseas locations for holidays and other special events or celebrations.
Overseas distribution is another unique facet of military business for Nash Finch. The company does not deliver directly to military operations outside the continental United States (referred to as OCUNUS in military jargon.) Product for these sites flows through DCs operated directly by the Department of Defense.
Nash Finch's job is to assemble and ship container loads regularly to a number of these military DCs, including three primary European distribution points and other sites in Puerto Rico, Cuba, and Iceland. Typically, the military gives Nash Finch 21 days notice on orders for batches of container loads for shipping overseas.
Besides assembling the product, some special steps are required of Nash Finch to prep these huge orders. "We don't ship any pallet unless it's first been heat-treated for nematodes, which is required by the European Union. This means we generally have to take product off of a CHEP pallet and reassemble it onto a heat-treated pallet before we can load a container for shipment overseas," Poore explains.
The distributor also goes through an intricate advance container planning process before it begins assembling each order to maximize cube in each container or "van," and to create a unique manifest for each of the scores of vans involved in a typical shipment, Poore says.
DeCA's overseas DCs typically comprise multiple buildings and sometimes multiple reserve zones within those buildings, he adds. So Nash Finch uses the container planning system to assemble each load according to the specific putaway and slotting logic at each DeCA location.
"We've also built in intelligence that indicates other requirements by destination. For example in Guantanamo Bay, [Cuba], because of offloading restrictions into the back rooms of the stores, they can only take smaller pallets," Poore adds.
After all the containers are assembled, Nash Finch transports the vans to the port in Norfolk. It coordinates with DoD's Military Transport Command, which is responsible for transport of the containers to their overseas destinations.
Port security requirements add considerable complexity to the process, Poore notes.
"All our drivers that go into port are certified, with special security ID cards that get them in and around the port. Having them registered in advance helps them get through the extensive inspection processes a lot quicker," he notes.
Feeding a Variety Of Tastes
An interesting feature of the commissary system, and a challenge for Nash Finch, is the variety of products sold, says Poore.
"There's a lot of diversity in the military force. And, with so many of our forces stationed overseas, over time a lot of our patrons acquire a taste for some of their host countries' foods. So not only do the commissaries purchase traditional American food, but also a lot of other items like curries and Japanese and German specialties."These items are shipped overseas but also distributed to many U.S. locations.
"There have also been some things we've done uniquely for the military, in shipping special food products overseas to support the war effort," Poore adds. "Around the holidays we may get requests from the exchange side of the business to develop or ship special products for airlift to overseas military bases and war zones. We assemble and palletize the product, and transport it to one of the Military Airlift Command facilities, like Dover Air Force Base. Often these orders involve highly perishable items that need to get there within a very narrow window."
In every day distribution, MDV also deals with patterns that are unique to the military.
"There are great swings in volume synched up with the two paydays per month for military people," Poore explains. "At Fort Bragg [in North Carolina], one of the largest commissary stores in the world, we could go from delivering two truckloads one day to 12-13 truckloads the next. We've been working with DeCA to try to smooth that out as much as possible, but to a certain extent it just has to be accommodated."
Managing security requirements is also a special challenge in this business, Poore says.
"Each base has different security requirements, as to the type, depth and breadth of the arrangements. It's planned that way as part of the security strategy to keep everyone on their toes and a bit off balance. For example, we have five Navy bases here in Norfolk and each has its own unique security ID card and procedures. That's a very big challenge for us.
"We also train our drivers on how to deal with the different types of security arrangements. They really are our customer service reps in the field, so they have to play that role from the moment they arrive on base to go through the security checks to the actual delivery and unloading of product until they leave base."
Many of the other differences between the military and retail business show up in back-office operations, Poore says, noting that MDV has pretty much developed its own enterprise systems to handle the business.
"The only significant part we didn't develop ourselves is the warehouse management system, which comes from EXE Technologies. It's a fairly common system in the grocery distribution world. We picked it because it handles the sheer volume of product we deal with."
MDV's accounting system is very different from the retail one,due to the nature of its contracts with DeCA and the manufacturers.
"We buy and pay for inventory from the manufacturer. Then, as the stores order product, every 15 days or 26 times a year we need to go through an invoicing process called a roll-up, where we bill the manufacturer for the product sold and ordered during that period, so we're then reimbursed for the inventory and our fee." Poore explains.
Fees to each manufacturer involve a separate negotiation based on things like volume patterns, product cube, other item characteristics and other handling considerations.
Investing In IT
Among the other IT systems MDV has developed for itself is a Web portal where customers (manufacturers and brokers) can obtain a comprehensive set of data on such issues as order and shipment status, sales history and item velocity and performance against various trendlines, volume history, and inventory levels.
"It's really a data warehouse system where manufacturers can access and retrieve whatever information they need to make appropriate decisions. They can look at inventory to see if it's turning the way it should, to make sure they don't get into an aging situation. Then they would run a promotion or do whatever they need to move product into the stores before it's outdated.
"The portal's been a huge success for us in facilitating the whole flow of information and with it the flow of product," Poore says. It has been in place since 1998.
"We were an early leader in that," Poore observes, "because we saw the opportunity to provide a key service to our customers."
Another investment in the last year, aimed at enhancing service, was installation of Vocollect voice recognition software for order selection. "That's already paid for itself handsomely," says Poore. All other warehouse functions are handled through RF applications, which have been in use at the division for over 10 years.
Describing the division's capabilities, Poore adds, "We're really a full-service distributor. We handle a multitude of products. We do a lot of crossdocking for manufacturers. We also provide some kitting services. We're very much a full-service 3PL operation."
There is one more special feature of the military business, Poore comments, that helps drive the division's performance.
"There is a certain pleasure and sense of accomplishment that you get dealing with this patron, knowing that what you're doing is supporting the folks in the armed services," he says. "We're neighbors with these people. We see them every day and interact with them, and see the benefits they get from the commissary, which are substantial, and we feel a part of that. There's a pride in this, which really does make a difference at the end of the day."