Tech Tightens the Supply Chain
Grocery wholesalers and distributors have been investing in an array of technologies to make their operations more efficient, but they will continue to face challenges as their retail customers expand their e-commerce capabilities.
"Retailers over the past three years have spent a lot of money on the customer-facing side of IT–how do I make a good website, how do I get people to come to my website–and they have neglected the executional side of that: How do I actually fulfill orders?" says Mike Griswold, research vice president at Gartner, based in Stamford, Conn. "Now the time has come to figure out how to execute orders in an efficient way."
Griswold says he expects to see a lot of investment in supply-chain IT geared toward omnichannel execution the next few years. Retailers will need to solve the challenges around how online orders will be fulfilled, especially as they seek to offer an extended product selection not found in their stores.
"A retailer might carry 35,000 or 40,000 items in a store, but online they might want to present 80,000 SKUs," Griswold says. "Those additional 40,000 SKUs have to come from somewhere. Some might come from the distributor, some might come directly from the supplier, but distributors need to be in a position to support that additional range that retailers are going to want to provide."
Many European markets are "conservatively 12 to 18 months ahead" of the U.S. in implementing systems that support this kind of omnichannel activity, he says.
In the meantime, wholesalers and distributors have been investing in more technologies to enhance their data analytics capabilities and their logistics efficiency.
One key area of investment for distributors has been in tools that help them leverage demand signal repositories (DSRs), which can be used to help optimize inventory levels and delivery schedules.
"From the distributor perspective, the big area of interest is around collection of retailer data."
"From the distributor perspective, the big area of interest is around collection of retailer data," Griswold says.
Retailers have shown an increased willingness to share their point-of-sale (POS) data and other information, such as inventory information and on-shelf availability data, which is helping to propel the interest in DSR systems, Griswold says.
"Retailers in the past have been a little bit hesitant to share that POS data," he says. "As retailers loosen up with that data, distributors are stating to say, OK, we need the tools to help us process that data and analyze it."
Distributors are also leveraging that data to do more segmentation among their customers in an effort to improve service, Griswold says.
Associated Grocers of Baton Rouge, La., a cooperative wholesaler, leverages sales data to help its members optimize their product sets, says Jay Campbell, executive chairman.
"We're using technology to gather the data that we can to help the retailer make good decisions," he says.
Demand-forecasting tools remain an area of opportunity for distribution companies, particularly smaller distributors, to invest more resources, according to Marc Wulfraat, founder and president of MWPVL International, a global logistics consulting firm based in Montreal.
"That's something that a lot of companies want to get into, but they have not been able to master it," he says.
Among the challenges is the fact that sales of some products–particularly low-volume, seasonal or specialty items–can be difficult to predict.
Even when distributors can correctly forecast consumer demand, they must balance that against product availability. Supply can be particularly variable when sourcing specialty products from overseas, where long lead times are also part of the forecasting mix.
"You can predict what people are going to buy, but you can't always predict what the suppliers are giving you, and you end up with a shortage."
"You can predict what people are going to buy, but you can't always predict what the suppliers are giving you, and you end up with a shortage," says Wulfraat. "It could be that a crop that got wiped out by bad weather."
LOGISTICS AND TRANSPORTATION
Another hot area of supply-chain IT investment is logistics and transportation, says Gartner's Griswold. Distributors have been investing in tools to model various supply-chain scenarios and strategies, looking at things like delivery frequency and product flows to ensure maximum efficiency.
Campbell of Associated Grocers says driving efficiencies in this way presents challenges, however, particularly when the wholesaler serves a network of independent stores, as opposed to chains with captive distribution operations.
AG, for example, uses distribution routing technologies, but struggles to attain the maximum benefit from such systems because as a cooperative, its mission to serve its members requires that it accommodate the schedules of those operators.
"If we were a chain operation, we could dictate to them when the trucks were coming, so we could really optimize the use of our equipment, and we might have fewer pieces of equipment," Campbell says. "We would be sending trucks out whenever it was convenient for us, and we would shift the burden to the retail outlets.
"In our world, serving independents, we do what is best for them, which may not be what is best for us," he adds. "But we still use good, qualitative routing software so we can blend what their needs are with what our needs are to come up with what is best for all parties."
Wulfraat of MWPVL notes that the transportation aspect of the supply chain "is probably the one operational aspect that breaks the most because there are so many variables that can't be controlled." Those include factors like bad weather, highway congestion and driver availability, all of which can be compounded if distributors outsource some distribution functions to third-party firms.
Retailers with captive distribution tend to use tracking systems to monitor their fleets, which helps stores prepare to receive deliveries. That's not always the case with outside distributors, Wulfraat says.
"In the world of distributors, where the distributor might be going to the [distribution center] or to the store, they are not always calling ahead to say they are showing up, or perhaps they are showing up at 6 o'clock when they were supposed to show up at 4 o'clock," he says.
Electronic ordering, invoicing and advance shipping notification have become old hat for some distributors, but others are still making the transition.
"Probably the most important technology in this day and age is to have standard electronic purchase orders, electronic invoices, electronic shipment information and so forth," says Wulfraat.
Campbell of AG notes that electronic data interchange (EDI) with suppliers has become largely routine, although the industry continues to work on defining all of the appropriate product attributes necessary for tracking each item.
"That's the one thing that has really lagged since ECR [efficient consumer response] came out 20 years ago," he says. "We still have not figured out what attributes we need to all provide to one another in a precise, clear, accurate and timely fashion."
Wulfraat notes that wholesalers and distributors that do not invest in the most current data and logistics technologies stand to be overtaken by those that do. Any added costs from inefficiencies end up getting passed along to customers, who are always on the lookout for a better deal from a distributor who can provide the same services for less money.
IT Improvements Help Wholesaler's Logistics
Unified Grocers, Commerce, Calif., which bills itself as the largest retailer-owned wholesale grocery cooperative in the western U.S., is in the process of rolling out several technological improvements for its supply chain. In January, the company announced the hiring of Gregg Bostick as vice president of logistics. Bostick has more than two decades of industry experience in supply-chain posts at Supervalu, C&S Wholesale Grocers, Americold Logistics and Pinnacle Foods.
Retail Leader spoke with Bostick about his efforts in the IT area of the supply chain.
Q: What are some of the latest technologies that have been successful at improving efficiency, speed and/or accuracy in the supply chain at Unified?
A: One of the things we did recently this past year was with an IBM system called Prospero, which has really helped with routing, and to better manage loads. We also upgraded some of the software pieces of the mechanized warehouse in Commerce, and that has increased efficiencies, and has also reduced damages. We just put that in about a month ago, so we are just now starting to work out the bugs in it.
Q: What have been the specific benefits of these systems for retail members?
A: It is a pretty robust routing system that we just implemented around the first of the year, so we are just now scratching the surface on efficiencies. We are also seeing reduced damages [from the upgrades to the Commerce warehouse software].
More efficient routing also led to some of the updates we have done with our invoicing system. We went to paperless invoices now, which are much more accurate. With the old system, printing invoices–I can't tell you how many times it got hung up, and that can cost hours of time. We don't have that problem anymore.
Also, some of the check-in process has been simplified because of advance shipping notices, which [retailers] can just pull up and see what's coming. Over the last six months or so, we also got our mobile app up and running, which stores can use to do ordering via iPhone or Android.
Another upgrade we did was to our retail portal, which we call the Business Center. One of the things we did was that we really enhanced the search capabilities – it might sound simple, but before, you almost had to put "Campbell's Chicken Noodle Soup" in to find that item. Now you can just put in "Campbell's" or "soup" or "chicken." Now it is much easier to search, and the retailers really like that.
Q: What areas has Unified been focusing on in terms of seeking technology solutions?
A: On the logistics side, one of the areas we are focusing on right now is Electronic On-Board Recorders [EOBRs]. One of the things we want to be able to do is signature capture in real time.
The other piece is we are looking at is more advanced trucks, so they get better mileage, using more advanced electronics. They have automatic transmissions, which get noticeably better gas mileage than standard shift, because computers do all the shifting. We're also looking at aerodynamic improvements.
Plus, our new trucks that are coming in will have satellite tracking, and we will be able to check everything with onboard computers, from route times to the temperatures of the trailers. "We will know if a truck is literally pulling in or is five miles away, so we can start looking at the receiving process."