Distribution key to survival: studies reveal push for greater supply efficiencies

Discount Store News, March 6, 1995

NATIONWIDE DSN REPORT -- Discounters, vendors and third-party distribution providers are more aggressively pursuing greater supply efficiencies in order to gain powerful financial and competitive advantages.

That is the message from two recent studies on distribution and logistics, one by the International Mass Retail Association, Washington, and the other by the Arthur Anderson Consulting, Chicago.

Logistics, once a poor stepchild in the shadow of more glamorous merchandising, promises to become the Cinderella of the '90s as small- to medium-size discounters come to realize that they must improve distribution in order to survive against Wal-Mart, Kmart and Target, the IMRA survey found.

Now the challenge becomes executing their "new-found religion," the IMRA survey concluded.

Titled "Pushing for Productivity, Efficiency and Competitiveness," the 1995 IMRA survey was conducted by the association's Physical Distribution & Transportation Steering Committee.

Other major conclusions of the IMRA study include:

* The biggest companies are not always the most aggressive in terms of distribution center operational practices, since s greater size makes it more difficult to make major changes. Many retailers in the $1 billion to $5 billion range are aggressively moving to improve distribution, which, if successful, will create a new class of formidable competitors.

* Retailers of all sizes are reaping annual double-digit productivity gains, and those gains can be expected to continue as work shifts upstream to vendors. Despite widespread variations in size, retailers share common techniques to maximize operational productivity. Most logistics executives have similar employment and work histories.

* Pay for performance, relatively new for many respondents, is becoming more widespread. Some smaller- and mid-size companies have been the leaders in applying pay-for-performance principles to distribution centers and many have gained a competitive opportunity because of it.

* Distribution is becoming an around the clock operation. Operating hours for distribution centers continue to stretch and seven days per week schedules will become common. The delivery cycle continues to shrink, with overnight and early morning delivery and stocking helping to speed goods to the selling floor.

* Non-store retailing--telephone, catalog, interactive and in-home shopping--is accelerating, and some of the largest retailers project that 20% of their sales will come from non-store channels within three years. In 1992, nonstore retailing accounted for 15% of total GAF sales, and that could grow to more than 50% by the year 2010.

Of the retailers responding to the survey, 51% reported sales of less than $500 million; 9% had sales of $500 million to $1 billion; 28% reported sales of $1 billion to $5 billion; and 12% reported sales of $5 billion or more.

In a study called "The Mass Merchant Distribution Channel: Challenges and Opportunities," Anderson Consulting concluded that third party distribution providers can capitalize on the changing dynamics of retail distribution by providing value-added services and capabilities.

The study summarizes the types of services as:

* Basic services, such as storage, order processing, transportation;

* Value-added services such as bar coding, case labeling and order consolidations;

* Integrating logistics by providing seamless product and information flow, innovative solutions and full supply chain management.

A distributor can differentiate itself if it evolves from being a provider of basic services to a value-added logistics integrator that helps manufacturers and retailers establish smoother supply chain links, the Anderson study concluded.

Retailers and manufacturers are focusing on broad issues, rather than specific operations such as warehousing, the study found. For example, the shift from push distribution by manufacturers to pull distribution from retailers (using POS data) requires manufacturers to make their production and distribution methods more responsive. Those that do gain a powerful competitive and financial advantage, the study stated.

The retail focus has shifted to merchandise flow, rather than storage, leading to better instocks and turns. To achieve that, medium- and large-size retailers are investing heavily in staff, organizations, systems and infrastructure to gain greater efficiency in logistics operations.

The new technologies include cross docking, electronic data interchange, advance shipment notification and shipment container marking, the study noted.

Progressive manufacturers are working closely with mass merchants to anticipate the new, more stringent service requirements and taking the initiative to re-engineer the business processes.

Without exception, mass retailers described their leading suppliers as those that are proactive in jointly defining and implementing service requirements.

The most efficient suppliers have seized the opportunity to integrate the technology requirements of mass merchants into their own systems, the study concluded.