Safeway has ordered 300 truck tractors from Scania. The order comes at a time when factory gate pricing is high on the agenda for most large retailers. The purchase will strengthen Safeway’s control over primary distribution operations and increase cost transparency throughout its supply chain.

Scania, the Swedish vehicle manufacturer, will deliver 300 truck tractors to the supermarket retailer Safeway. Scania proved strongest in Safeway’s highly competitive performance trials for the deal. Scania has also reported that its operating income was up by almost 70% for the first quarter of 2003 to SEK1.303bn (US$157.5m), on revenues of SEK12.176bn.

Safeway has operated Scania trucks for many years. The retailer decided to opt for Scania once again as the Swedish manufacturer proved to deliver the lowest possible whole-life costs according to Lawrence Christensen, director of logistics for Safeway.
Based across the UK, the new vehicles will work on Safeway’s primary distribution operations, serving its 14 regional distribution centers nationwide.

Dan Hoij, managing director of Scania (Great Britain), said the deal reinforced how well such trucks dovetail into supermarket operations.

Distributing products from the factory to their distribution centers was previously regarded as a fixed cost. As retailers increasingly scrutinise costs, some of them are beginning to identify this as a new cost-reduction opportunity.

Traditionally, retailers buy products from their suppliers, and the suppliers are responsible for transporting these products to the retailers. The price the retailer pays for the goods includes supplier’s transport costs and the retailer also pays for the delivery.

However, the concept of factory gate pricing changes this. In the new arrangement the retailer takes responsibility for the transportation of goods from the supplier (the ‘factory gate’) to its warehouse, or the primary leg, as it is known.

In general, it remains to be seen exactly how manufacturers and logistics service providers will be affected through such moves by the powerful retailers, but with change comes opportunity. Those that embrace the change, working closely with the retailers, stand the greatest chance of coming away unscathed.

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