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Logistics Moving Fast on Conveyor Belt of Change: FMI

WASHINGTON, D.C. -- New technologies, elevated food safety concerns and the growth of mass merchandisers are all factoring into a rapidly changing logistics environment for food distributors and retailers, said FMI in a study released yesterday, the 2004 Food Industry Distribution Center Benchmarking Report.

The report, conducted each year by FMI, identifies trends, challenges and key developments that financially impact the distribution segment of the industry, including: affects on distribution from economy of scale-related issues; reduced inventories and deals; new item growth in the marketplace; implementation of new technology and information systems, such as RFID and mechanizations such as automatic storage and retrieval systems; and food safety in the public eye, which is encouraging distributors to implement new handling methods throughout the supply chain.

Total distribution expenses comprise 3.03 percent of sales, the report said. There is a significant difference in cost as a percentage of sales between the traditional food distributor and the self-distributing chains: 3.64 vs. 2.67, respectively. Food retailers show a much lower cost for direct labor and for management/supervision, due to the efficiencies gained through larger customer orders combined with a more balanced workweek. Retailers operate distribution centers with similar lower costs for building- and equipment-maintenance activities.

Labor costs are the biggest expense in operating a modern food distribution center, according to the research. More than 68 percent of these costs are attributable to labor expenses, both direct (warehouse labor) and indirect (supervision and administration).

One of the major cost drivers in a food distribution center is the number of items carried. Today's full-line distributors manage almost 25,000 SKUs, with increases every year. Many operators have incorporated a policy of one-for-one, i.e., for every new item accepted, a like product must to be discontinued. The results for this year show an increase in item count in all product categories except grocery.

The primary growth opportunity today is found in fresh and frozen products, as retailers seek to differentiate themselves through more upscale products and services, FMI said. This year, sales increases also are reported in the meat categories, as prices for beef rose significantly throughout the year. Many food distributors now offer organic products, specialty high-end products, ethnic lines and health-oriented merchandise, along with fresh fish and flowers. Both retailers and distributors are expanding their offerings of general merchandise and health and beauty care (HBC) products, in order to capture more "center store" sales.

The meat category experienced the most sales for the number of items on hand, which reflects the high case value. Grocery product sales are much lower, because this category has the highest number of slow-movers. (More than 60 per cent of the items move less than 10 cases per week.)
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