LOGISTICS: A natural progression

There's a new third-party logistics player in town. And what makes this one different from your average 3PL is that not only does it serve grocers with innovative supply chain offerings, it is a grocer as well.

A very large grocer.

Advantage Logistics was launched last October as a wholly owned subsidiary of Eden Prairie, Minn.-based Supervalu, and is the company's supply chain management offering. Advantage was designed to leverage Supervalu's distribution capabilities to create value in the consumer products supply chain for manufacturers, consumer product retailers, and foodservice consumers.

The idea for launching Advantage as a standalone company was conceived during a strategic review performed by Supervalu executives. "When they started looking at the business, they landed most appropriately on the fact that logistics was a core competency for Supervalu," says Advantage president Rick Finkbeiner. "As a matter of fact, I would say that it is a world-class core competency."

Been there, done that

Supervalu already provides distribution services to more than 4,200 stores of all sizes and formats, representing regional and national chain supermarkets, corporate-owned and licensed retail locations, mass merchandisers, price superstores, upscale supermarkets, supercenters, and online retailers. Its retail customers include chains such as Buehler Foods, D'Agostino's, Byerly's, Kroger, and Target Superstores.

A cross-sectional team of Supervalu executives, working with an external consulting company, explored the potential of logistics as a standalone business. "What came out of this was the fact that logistics outsourcing was a double-digit growth business, and it was a business Supervalu could excel in," says Finkbeiner.

Thus, Advantage Logistics was born. Well, sort of. The name had been around for six years—used internally on various projects, including the outsourced management of two Kroger distribution centers. One of those in Phoenix handles general merchandise, and one in Livonia, Mich. is a full line grocery DC. "We were deciding what to call the business, and since we had the two Kroger sites operating well under the Advantage brand, and since it already had some recognition among retailers, we decided to play off the existing Advantage name," he says.

The major strategic role of Advantage is to initially attack the two sides of the food industry—retail and manufacturing—relying on the strength, experience, and resources that Supervalu has on hand. "We have the ability to bring a lot of critical mass from different logistics networks within Supervalu, and we also have some marvelous relationships with the manufacturers and their products," Finkbeiner says.

The logistics networks include Supervalu's own, through which it ships to its own retail stores; its wholesale division, through which it services independent retailers; and the manufacturers that serve both of these groups. "We can take a network from another retailer, we can take networks from various manufacturers, and integrate all those networks and find the pressure points or the pivot points and optimize those networks as they are integrated," says Finkbeiner.

"In my past life working for third-party logistics companies, we always looked at buildings in isolation, or transportation in regional segments at best. At Supervalu, we are able to look at this on a national or continental scope."

Unlike many logistics networks, which focus purely on the informational side and partner with transportation management companies for the actual movement of products, Advantage Logistics will focus on both the movement of information and the movement of physical products.

In addition to benefiting from Supervalu's logistics networks, Advantage's retailer and manufacturer customers can tap into the company's logistics technology. Advantage has an entire suite of technology solutions available as a hosted service to its retail customers. Created by Supervalu, the technology includes warehouse management systems, transportation management systems, and even buying systems. "If they use our software, they will not only save the expense of investing in their own technology solution, they will also be employing a world-class system that has already been successfully implemented in many sites," says Finkbeiner.

On the manufacturer side, Advantage has a warehouse management system as well as transportation management software—both available as a hosted service. Taking the supplier side software one step further, the technology is also developed to accommodate replenishment hubs, which can serve as an exchange for a group of manufacturers and a group of retailers.

Advantage can operate the facilities using the retailer's or manufacturer's existing technology if that is what the customer prefers, says Finkbeiner. "We have built a flexible model that is designed to bring the best technology—if necessary—as well as the best people into the fold."

To ensure that Advantage helps its retail and manufacturer customers improve their supply chains to the maximum, Finkbeiner sets up key performance indicators (KPIs) for each customer. "There is a lot of fierce competition in this industry," he says. "It is an industry with razor-thin margins, and you must find out wherever you can take advantage of lower costs or improved quality, because it is not only about costs. Improved quality could mean improved fill rates, on-time delivery, and so on."

Advantage will guarantee a number of KPIs in its agreements, he says. "The obvious ones are cost per case, but then there are others such as selection accuracy, on-time delivery, sanitation, service levels, units per hour. There are all kinds of parameters, and we can customize the KPIs to meet the customer's needs at the time."

Not surprisingly, Advantage is targeting mid-size to large retailers as its primary market. "The fact that we do Kroger and do it successfully will demonstrate to any large retailer that we can do a good job there," says Finkbeiner. "There are also the mid-size or regional retailers that have two or three DCs. If we are able to come in and improve costs and quality, as well as bring technology in to them in this hosted environment, there is a strong value proposition there."

In order to have greater flexibility in its operations, and to grow the business faster, Advantage Logistics is a non-asset-based company, in both the distribution center management and transportation management segments. "If we are talking warehouses or distribution centers, we are either going to run a DC for a customer or we would make arrangements to open a Greenfield site for a customer and tie the length of that facility to the length of the deal," says Finkbeiner.

"The same goes for transportation. We have already demonstrated that we are good at managing carriers as a third-party operator, so we will just continue to do that. It doesn't make sense for us to invest in trucking. We will invest in managing transportation."

Cost plus

Most of the logistics services offered by Advantage will be on a cost-plus type of arrangement, with a management fee assigned and an agreement with both parties as to what the operating budget will be each year.

Operating as a non-asset-based company is the most equitable way to go to market with this type of deal, according to Finkbeiner. "The retailers appreciate it, because we are able to deliver lower costs each year. Plus, I am not having to compete within Supervalu for capital to do this, which is a good thing."

Not that he would have any problems doing so. Finkbeiner and his Advantage team have the full support of Supervalu corporate. "This is a strategy that comes from Jeff Noddle and the board," he says. "It has the support of president and c.o.o./distribution Mike Jackson, whom I report to, it has the support of the entire Supervalu company and the network, it has the resources of Supervalu at its disposal. It's kind of nice, because when we get in front of a customer, yes, we are new, but we can actually point to some very solid results that prove our case. It is not a giant leap of faith for anybody, because we can show them these world class facilities, we can show them the technology, we can have them talk to the customers and just find out what kind of job we have been doing."

For now, Advantage will be handling supply chain service between food retailers and their suppliers, but Finkbeiner sees the pharmaceutical industry as the next logical market for the company to serve. "We already have experience in the general merchandise and health and beauty, and through our retailers we have experience with pharmaceuticals," he says.

Advantage Logistics will focus on North America, including Canada and Mexico, during the initial marketing push, but it expects to eventually expand overseas. "Certainly, many of the manufacturers we deal with have operations around the world, and what we have to offer would work as well elsewhere in the world," says Finkbeiner.
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