This month’s just-food management briefing looks at logistics in the food industry. Part one considers the impact of a climate of low economic growth and high operating costs on food groups’ and retailers’ supply chains. Are these difficult market conditions stimulating the emergence of new ways of organising food logistics?
Speaking at a supply chain summit in November, organised by food and grocery information and research group IGD, its senior supply chain analyst Richard Jones focused his address on ‘growing in a low inventory environment.’
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“With stockless, continuous replenishment and lead time reduction in place across more and more categories, supply chains are changing forever. The traditional levers used to drive efficiency, respond to problems and improve availability are no longer appropriate. If businesses are to survive it will only be by developing new long-term strategies and more flexible operational processes,” Jones said.
In the current period of flat growth, retailers are having to look at alternatives to the volume- driven efficiency increases to fund price reductions. This sees inventories being cut by holding stock in fewer locations, with each serving more stores.
“Retailers are requiring more categories to be ‘stockless’ – holding products for less than 24 hours before they are needed in-store. As a result, they are working with suppliers to shorten lead times to now include categories outside fresh produce in the stockless process,” Jones added.
Jean-Luc Declas, executive vice president for the logistics division at Norbert Dentressangle, one of Europe’s leading food logistics services providers (LSP), confirms that a key factor in shaping current supply chain provision for fresh/chilled and ambient food is retailers’ low stock policy. “Retailers are demanding deliveries in smaller quantities and on a more frequent basis than previously was the case. This exerts considerable pressure on manufacturers to supply product as and when required and there is a strong reliance on LSPs to put a logistics framework in place to meet such demands.”
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By GlobalDataFor Norbert Dentressangle, this framework includes the investment in IT tools and processes which pilot the acceleration in goods flows, enabling rapid reaction to calls for product from retailers. “Another key feature is grouping products from several manufacturers under the same roof for distribution in order to generate ‘critical mass’ volume,” Declas argues. “This is crucial if the costs from what is now a consolidation/groupage logistics operation are to be kept at levels more or less the same as those for full-truck loads.”
Declas also highlights that the very structure of warehouses has changed as result of the low inventory environment with tall, large-capacity buildings giving way to facilites where the most important features are the number of loading/unloading bays for cross-docking operations in order to allow goods to come in and go out again in the space of a few hours.
PepsiCo UK & Ireland’s supply chain director, Jane Burkitt, points to increasing competition in the retail sector, which has intensified in the economic recession, as playing a central rôle in determining food supply chain provision today.
“One of its main features is the extremely quick response on the part of retailers to what their competitors are doing and which often sees them following suit. Across the UK, there is more and more promotional volume and greater volatility in demand,” she explains.
“The technology retailers now have at their disposal means they don’t have to wait until the end of the day to see what’s going on in a store but have real-time visibility on what stock they’ve got on the shelves. This puts the onus on suppliers to be versatile and reactive in turn and be able to provide product to the shorter lead times retailers are demanding. Operating in this way makes good business sense and the key to it working efficiently depends on close collaboration between suppliers and retailers in order to maximise communication on stock requirement forecasts and there is a willingness on both sides to achieve this.”
Across the English Channel, Laurent Parat, assistant director for logistics at French group Geodis, says another important change in food retail supply chains in recent years has been driven by the multiplication of retailer formats – hypermarkets, supermarkets and convenience store outlets.
“Retailers no longer have the means to organise dedicated logistics services for each of these formats and count on their LSPs to provide an integrated mutli-format offering. As for manufacturers, the big change has been the shift to pooling their products with those of other manufacturers in order to minimise costs,” Parat says. “These changes have represented a real development opportunity for LSPs and underlined their expertise in being able to offer services which retailers and manufacturers can’t provide themselves.”
Parat says the accent today is more than ever on cost-effective, collaborative supply chain operations. “For example, Geodis could be carrying, on a single truck, a load made up of three or four different brands of the same type of product from several manufacturers bound for say, Carrefour, Auchan and other retailers’ outlets.”
