Factory Gate Pricing

Factory gate pricing could change the line of responsibility.


In some cases, retailers may not want to adopt factory gate pricing, either, the experts warn. "Taking 100 percent control of all inbound shipments may not always be the best situation. There may be cases (i.e. certain lanes or geographies) where having the vendor maintain control is the best option because they may be able to obtain better rates or service," Gonzalez says.

"Supplier control over transportation and distribution will continue to be reduced. Retailers' power as employers of transport logistics will be increased," Datamonitor predicts.

According to Datamonitor, logistics companies stand to gain the most from factory gate pricing. "There are opportunities for logistics companies that can add substantial value for retailers, and help them reduce supply chain costs. Those with more geographical coverage and global retail supply chain expertise will be in demand by those retailers seeking to control their overseas-sourced products from the factory gate," the firm concludes.

DSD, FGP: Complementary, Not Competitive

While many argue that factory gate pricing will spell the end of direct store delivery, that is not the case, according to many experts who have followed both trends.

"For food companies, there are lots of opportunities for factory gate pricing. You can take it one step beyond in that you can skip the DC and bring it right to the stores," notes John Murphy, director of product marketing at software provider G-Log, based in Shelton, CT. In fact, "it allows Tesco to do more DSD. Things can be consolidated in one truck to go directly to the store. You can pick up Coke at one location and bread at another, load them both onto one truck and take them straight to the store with DSD."

"DSD is still relevant, because it relates to getting goods into the store, not from the manufacturer," adds Richard Kochersperger, director of the Food Marketing Group in Wallingford, PA, and a professor of food marketing at St. Joseph's University in Philadelphia.

And, for retailers frustrated with DSD, factory gate pricing can eliminate many of the problems associated with it, Kochersperger adds. "Stores can get the items more cheaply and they do not have to have guys running all over their store and trucks all over their yards, receipts all over their docks, etc."

"If I were a retailer, I would do it in a heartbeat," he says. "I would want to be able to control every aspect of my business and would not want the manufacturer to control the transportation costs for my goods. I would want to control every movement of goods into my facilities."

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