Grocers are revamping their transportation strategies by investing in technologies and equipment and forming new partnerships.
By William Epmeier
If the past several years have taught supermarket transportation executives anything, it is how to quickly adapt to changing conditions.
Tumultuous economic times, although not as hard on supermarkets as on other types of retailing, have still challenged top management to question every part of their transportation strategy. The industry has been whipsawed by wild swings in freight volume, transportation capacity and fuel costs in recent years. In some cases, this has caused executives to double-down on existing approaches, and, at other times, to change direction.
Through it all, supermarket operators have kept a laser-like focus on keeping shipping costs down. The environment of the past several years has made everyone more flexible, says Ken Morrow, general manager of Ruan Transport Corp.’s Eastern division. “Everyone is trying to do more with less and not many ideas get rejected out of hand.” Officials at Ruan Transport Corp., an international transportation company based in Des Moines, Iowa, say they have seen an uptick in partnerships with retailers, and in fact, the tough economic times have generally favored big companies with strong balance sheets.
Industry executive say thousands of small trucking companies have gone out of business over the past three years, and with financing tight, many larger companies have the wherewithal to keep investing in equipment and technology upgrades.
Up to several months ago, it was a buyers’ market for transportation services. Carriers, many of whom were desperate for business because of the worldwide slump in shipping, had cut rates drastically.
But as freight volume increases, “everyone wants to be partners again,” and shippers are rushing to lock in long-term contracts with their transportation partners, says Greg Sanders, president of OHL Transport Services, a transportation provider based in Brentwood, Tenn.
Shipping activity started to turn around about the first of the year, according to Richard Metzler, chief commercial officer for Dallas-based Greatwide Logistics Services. “About mid-February it was like someone turned the water faucet on,” he says. The result has been more business for transport companies, he adds, but also “a dramatic tightening in capacity.” A lot of capacity—companies, equipment and drivers—came out of the market after 2007, so when the upturn in freight volume started early this year, there was little elasticity in supply. Especially hurt have been smaller shippers that do not have long-term freight contracts, and have been forced to buy freight services on the spot market.
Sourcing from overseas has been a particular problem for retailers, according to Mona McFadden, transportation product manager for RedPrairie, a provider of transportation management systems (TMS) software based in Waukesha, Wis. “Slow steaming” (a slowdown in the speed in order to save fuel costs) and a dramatic reduction in the availability of shipping containers are causing some shippers to be bumped from ocean-going vessels, and, for pretty much everyone else to have their delivery schedules stretched out.
Many grocery chains and wholesalers are not just buyers of freight services, but also operators of extensive fleets themselves, typically for warehouse-to-store deliveries. This has exposed them to all of the financial strains that have hit the trucking industry in recent years—high capital costs, declining volumes, spiking fuel prices and the challenges of managing a large, labor-intensive network. This has caused some supermarket operators to re-examine their commitment to private fleets, according to industry experts.
In fact, logistics providers such as Schneider National, Ruan, Greatwide and OHL are targeting in-house retail fleets that have traditionally handled warehouse-to-store deliveries. “Our pipeline for private fleet replacement is very significant,” says Don Van Alstine, general manager of the dedicated services division of Schneider National, based in Green Bay, Wis.
“It comes down to whether you consider transportation a core competency,” says Sanders of OHL. “There are huge capital expenses involved in private fleets, and you have to be committed to keeping up. You can’t dabble. You also have to ask yourself if you are getting economics of scale.”
Third-party logistics providers like DSC have found that manufacturers, as well as retailers, are today more willing to rethink their logistics networks. “Manufacturers that have had separate distribution networks are now saying, ‘if I work with ABC companies that are similar to me, we can consolidate shipments going into retail DCs” explains Scott Morgan, transportation vice president for DSC Logistics, based in Des Plaines, Ill.
“We’re in a great position to facilitate this collaboration because we have so many relationships with mid-level companies around the country. This allows us to bring companies together that may never have cooperated otherwise,” Morgan adds.
All this volatility in the industry, says McFadden of RedPrairie, has stimulated interest in transportation management software. The draw for retailers is the promise to lower costs and give companies more control and “visibility” down to the individual truck trailer. The trend in TMS increasingly has been toward integration “in one seamless platform.”
For example, many retailers in the past bought standalone dispatch software to handle the routing of merchandise from DCs to stores. There was little connection with other programs managing in-bound freight. Today, retailers want integration between in-bound and outbound TMS programs in order to be able to see where deliveries to stores and pickups at manufacturer and distributor locations are possible. Combining in-bound and out-bound activities on the same route saves money because trucks are full both ways.
One company that has pioneered this approach is Wal-Mart, which recently took over management of in-bound freight activities. Other supermarket operators are looking at following suit.
Rik Schrader, senior vice president for Plano, Texas-based Retalix, another supplier of TMS software, notes that many companies “siloed” inbound and outbound, gate and yard operations, appointment scheduling, etc. “Now there’s much more interest in a holistic approach.”
“Companies are not necessarily investing in entirely new TMS packages, but in tweaks to existing systems,” states Chris Ferrell, a supply chain consultant with Tompkins Associates, based in Raleigh N.C.
Compared to warehouse management systems, “TMS delivers the bigger ROI, the payback is fast, it’s relatively cheap and it’s easy to defend to upper management,” Farrell adds.
Drilling down costs
Grocers are also using software to uncover hidden transportation fees, according to industry experts, prompting some to demand that suppliers “unbundle” their costs, explains Chris Jones, executive vice president of Descartes Systems Group, based in Waterloo, Ontario, Canada. Traditionally, product manufacturers rolled transportation costs into the cost of the merchandise, but with increasingly sophisticated transportation software, retailers can analyze every step of the transportation process. What was hidden by shippers is now visible, and negotiable.
Similarly, line haul rates charged by trucking companies are also coming in for scrutiny, explains Ferrell of Tompkins Associates.
In addition, the increasingly detailed cab technology and other monitoring systems allow companies to track every move a trucker makes. “There’s a ‘big brother’ effect to this, no doubt,” says Jones of Descartes, but it is effective. By using GPS to dictate routes, companies can identify the least costly routes—and know when drivers deviate from these routes. Knowing the status of trucks, minute-by-minute, and communicating with drivers, allows companies to know if trucks will arrive on time, or need to adjust delivery times. New cab technology also allows training programs to be transmitted to the truck cab, and for drivers to stay in touch with their families through e-mail, explains Van Alstine of Schneider.
Continuous monitoring also allows supermarkets to track temperatures in refrigerated trucks, and to know when, and for how long, temperatures are out of compliances, such as during deliveries, when doors are left open. “Traceability,” the ability to know who has handled merchandise all through the transportation process, is especially important for the handling of perishable foods explains Schrader of Retalix.
There is money to be saved the further one digs down into the transportation operation. Ferrell of Tompkins Associates says that sophisticated shippers and retailers are increasingly challenging line haul rates by looking at all the assumptions that go into these rates. For example, explains Ferrell, “Freight companies may bake into their rates one- or two-hour waits before trucks can be unloaded at DCs.” Instead of paying flat rates, shippers are insisting that freight “be looked at on a total cost, not a line haul, basis.”
Just in time
Just-in-time inventory, which has been a favored strategy for retailers for years, has come in for adjustments during the recent recession. Supermarket operators and manufacturers have found ways to economize without harming service levels in stores.
Ferrell of Tompkins Associates explains that just by “broadening the transportation algorithm a little,” retailers can save a lot of money over an entire network. For example, instead of stores receiving deliveries on a fixed schedule every week, dispatchers are becoming more flexible. If a particular store route is short of a full truckload, a nearby store not scheduled for delivery until the following day may get merchandise early, in order for the truck leaves the DC full.
“Dynamic routing”—whereby retailers move away from fixed delivery schedules—is another example of how relatively small savings, when spread over an entire distribution network, can result in significant savings.