Proceed with Caution

In the food retail supply chain, plenty of grocers and suppliers have made significant strides in their cost-cutting efforts over the past several years. New data imply, however, that all of their ingenuity and hard work may have been undercut by economic factors that are largely out of their control — namely, the daunting area of transportation.

Eighty percent of CPG supply chain leaders say that transportation is now their greatest worry, according to a recent report from the Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA). In “A Hard Road: Why CPG Companies Need a Strategic Approach to Transportation,” the authors note that CPG companies’ freight costs have risen to 14 percent since the last BCG/GMA supply chain benchmarking study was conducted in 2012.

“Supply chain leaders are caught between two challenging transportation trends, as they either must pay more to meet service-level expectations or sacrifice speed and reliability for cost efficiency,” observes Daniel Triot, senior director of the Trading Partner Alliance of the Food Marketing Institute and GMA. “That is hardly a prescription for long-term success.”

Although transportation is the most pressing issue on the industry’s mind, other economic challenges, such as an increasingly tight labor market and consumer demand for fresh food and online delivery, are also impacting the supply chain like never before. All of this concern suggests that supply chain management is now becoming a c-suite issue that must be factored heavily into companies’ overall business strategies.

During a Sept. 15 webinar discussion of the BCG/GMA report, Tim Near, a senior advisor at BCG laid the issue on the line. “In this new world of chronic problems the conversation must be elevated,” he contended. “Supply chain issues need to be on the agenda of the c-suite, with top executives asking, ‘How does this affect my business strategy? How can we manage this going forward?’”

Near and others seem to agree that there’s no “magic bullet” solution. But if company leaders work to more actively manage the roadblocks ahead by forming a clear strategy using smarter tools and working more closely with their trading partners they can be better prepared.

Roadblocks Ahead

Driver shortages and chronic capacity squeezes along with growing congestion and delays are the main transportation issues threatening delivery times inventory management and service levels according to the BCG/GMA report. The country’s aging transportation infrastructure is largely to blame.

“Supply chain leaders used to view transportation problems as cyclical but these problems are here to stay,” notes Peter Dawe a BCG partner and co-author of the report. “Now we’re seeing such an acute capacity shortage that it can be near impossible to get loads on some lanes moving. Transportation is becoming a strategic planning consideration, not a simple commodity to be sourced.”

Fortunately, some CPG companies and retailers are already ahead of the curve in making these issues a priority and exploring ways they can fight back.

Sunbury, Pa.-based Weis Markets, a Mid-Atlantic food retailer that operates 163 stores in Pennsylvania, Maryland, New Jersey, New York and West Virginia, is staying “focused on the fundamentals” as it meets its challenges, according to Wayne Bailey, VP of supply chain and logistics.

“As a company that self-distributes, we recognize the challenges and opportunities in the supply chain arena and know that it is essential to our success,” Bailey tells Progressive Grocer. “We’re … efficiently executing every step of the way and, most importantly, helping our stores serve our customers.”

He notes that fuel prices have been a challenge, but finding qualified mechanics and drivers is also a key issue for the company.

“Over the past decade, we’ve given our people the tools to efficiently manage our supply chain,” explains Bailey. “Today, we’re doing a better job utilizing technology to improve efficiencies, particularly with RF loading and receiving. These improvements have allowed us to increase product turns and reduce inventories.

“In the transportation arena, we’ve upgraded our fleet, which has lowered our maintenance and fuel costs,” he continues. “We also use software programs that allow us to plan the most efficient routes and reduce idling time, which conserves a significant amount of fuel, and we’re mindful of the role our drivers play in this process, which is why we offer them a fuel conservation incentive.”

In addition, Weis Markets has increased its use of intermodal transportation, which Bailey says is “cost-efficient and requires less handling,” and has realized considerable savings with its managed transportation program. He notes that the latter initiative “is a crucial area for us, when you consider how freight expenses are a huge cost center. We’ve been able to drive costs out of our supply chain — and we think we can do better in the years ahead.”

Meanwhile, on the CPG side of the business, companies such as Procter & Gamble, Bumble Bee and Land O’Lakes are deploying a variety of tactics to fight transportation challenges, according to the BCG/GMA report. These tactics include efficiency moves and choice of ownership model, network redesign, and new partnership approaches with customers, carriers and even other manufacturers. BCG/GMA estimates that implementing a suite of tactics with an integrated approach can lead to a potential cost savings of 7 percent of transportation spending, or roughly $1 billion, industrywide.

Fresh Consideration

Once companies begin to get a handle on their transportation challenges, many of them have another big supply chain issue to navigate: shipping and receiving perishables.

The U.S. Food and Drug Administration’s Food Safety Modernization Act of 2010 (FSMA) presents new complexities for the grocery supply chain, notes Mike Wasson, VP of supply chain and operations at Tosca, an Atlanta-based company that provides reusable packaging and supply chain solutions across multiple fresh categories.

The FMSA “changes the way food is sourced and managed through the supply chain,” he observes. “Current practices used for perishable goods to package, ship and deliver in a controlled-atmosphere environment will become more critical.”

Tosca works directly with many grocers to provide reusable packaging and supply chain solutions for perimeter departments, according to Wasson. These solutions aim to reduce waste related to such components as product, packaging and labor. He says that Tosca’s reusable plastic containers decrease product damage by up to 50 percent, reduce labor by up to 20 percent or more, and eliminate corrugated packaging from even entering the supply chain.

In Wasson’s view, the grocery supply chain needs to be “constantly evaluated” for areas of improvement and efficiency gains. “Retailers need to look holistically at the supply chain process, collaborating with multiple functions within their organization,” he says. “The overall benefit might only be understood if the entire supply chain is evaluated.”

Digital Demands

Another area of the business that demands more supply chain attention is online ordering, pickup and delivery. In this regard, even the largest chains have big hurdles to overcome.

“The issue for the big chains is how to facilitate home delivery and/or support the small-format stores they are trying to use for growth,” observes Arnold Maltz, associate professor of supply chain management at the W.P. Carey School of Business at Arizona State University.

“Independent retailers will still be OK for upscale areas, but even they will have to offer delivery options — and their initial tendency is to use their own vehicles,” he says. “Unfortunately, that will not scale, so the independents may start looking for local or even national companies to handle their deliveries.”

All in all, grocers have done a decent job of finding ways to alleviate some of the rising costs in the supply chain, say Maltz and others. Maltz points to improvements in inventory accuracy and timeliness, efforts at predictive analytics, and store-based delivery.

However, he concedes: “The pressures are not going to lessen. Issues such as the GMO and organic controversy, along with the continuing shift to fresh food where possible in this country, are going to continue to push costs.”

Therefore, it behooves companies to ensure that supply chain management is a strategic priority throughout the entire organization.

“Retailers need to look holistically at the supply chain process, collaborating with multiple functions within their organization.”
—Mike Wasson, Tosca

“The issue for the big chains is how to facilitate home delivery and/or support the small-format stores they are trying to use for growth.”
—Arnold Maltz, W.P. Carey School of Business at Arizona State University

“As a company that self-distributes, we recognize the challenges and opportunities in the supply chain arena and know that it is essential to our success.”
—Wayne Bailey, Weis Markets