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Study: Discounting and Demographic Trends Put Pressure on Food Distributors

HOUSTON - Food distributors are being squeezed by three powerful trends that are pressing the industry to further increase efficiencies in distribution centers (DCs) and try even harder to meet customers' logistics needs, according to the 2001 Food Industry Distribution Center Benchmarking Report, recently released by Food Distributors International (FDI) and the Food Marketing Institute (FMI) at the 2001 Food Industry Productivity Convention.

The three trends are:
* Vigorous price competition faced by distributors' retail customers from mass merchandisers such as Wal-Mart, now the nation's largest grocer with an estimated $60 billion in sales;
* Increasing difficulty in finding enough employees to operate their warehouses and trucks, especially at night and on weekends;
* Consumers' growing preference for prepared meals and fresh and frozen foods, which forces distributors to monitor food temperature and freshness more closely, and make more frequent deliveries to stores.

On the plus side, the report says distributors have increased their productivity, with cases handled per hour rising to an average of 71, up from 69 cases last year. Richard H. Kochersperger, author of the report, says this improvement is most likely due to larger volume DCs as a result of consolidation; servicing larger-volume stores; and greater use of such technology as voice-activated systems and radio frequency programs.

Supply chain technology - whether or not it is in the warehouse - is also wielding a positive influence on DC efficiency, the report says. "E-commerce concepts have become a major focal point for new partnership initiatives," the report says. "These business-to-business networks will permit the sharing of information on product supply, inventory movement, promotional activities and payment."

The labor shortage emerges in the report as a serious issue, with 31 percent of respondents calling it critical or severe. Employee turnover is also a major problem for many companies; 37 percent said they are changing 20 percent of their workforce each year.

Expense results were mixed. In the continuing drive to cut costs and become more competitive with self-distributing chains, the respondents said cost as a percentage of sales fell from 2.84 percent to 2.62 percent, on average, from last year to this year. But handling cost per case rose from 46 cents to 54 cents.

DC management officials continued to identify recruitment of qualified associates and communication with the workforce as the biggest challenges facing them.

The report results indicate that more companies are adopting some form of activity-based costing, there is still "a strong need for consistency in measuring and reporting accounting and productivity information" about DC operations.

Likewise, investment in warehouse equipment and building maintenance is being neglected, the report says. Equipment is being kept too long, with many fleets using pallet jacks and forklifts that are more than 15 years old.
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