What
are the benefits of consolidation?
Consumer goods distribution will dramatically change in the next 2 to
5 years due to technology improvements. -
Robotics
- Automation
- Voice
technology and radio frequency
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 | Companies
will be forced to rethink supply chain and distribution strategies.
- Fewer candidates
are available for acquisition
- Companies
are looking at paying lower multiples
- Higher
margins need to be gained (cost savings of $0.50/case)
- The
biggest returns will go to the first movers
- Problems
in hiring and maintaining a trained labor force
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Recent
logistics initiatives (ECR, VMI, and CRP) have taken the low-hanging fruit but
not nearly the $30 billion dollars in savings that were promised.
- Manufacturers
have paid their customer, in price or services, to become more efficient
- One
week of inventory has been removed from the system by filling up trucks,eliminating
forward buying, and better inventory management
- We
have taken waste out of a supply chain that was designed in the 1950's - it is
still the wrong model
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What
we have today is thousands of individual supply chains. What we need is one supply
chain with portals for companies to come in and out of. -
Each manufacturer has their own individual supply chain
- Each
retailer or wholesaler has their own supply chain
- The
Internet only works because there is one. Supply will only work efficiently when
there is one in each region of the country
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 | RBCW
(Really Big Consolidation Warehouse) concept -
Multiple manufacturers store their products in the RBCW
- Retailers
could pull product out of the RBCW when they need it
- The
RBCW is 20 to 30 times the size of the traditional distribution center
- Faster
movers (2,500 of the top 50,000 SKUs) would still ship directly from the plant
to the store
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The
RBCW uses a collaborative supply chain to change the basic economic order quantity
- Today the basic
order quantity is a truckload of product from a single manufacturer
- The
new economic order quantity is a case or pallet
- Order
quantities are aggregated into truckloads
- Freight
is allocated across manufacturers based on a cube-adjusted-weight
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The
benefits of consolidation are huge -
Transportation costs are reduced
- This
reduces the average time from demand creation to fulfillment to one week
- Storage
costs are reduced as we move to JIT delivery
- Handling
costs (forklift work) are reduced as the product is not "put up in the air"
for storage but right into the pick slot
- 40%
of the cost of running a warehouse is in the selection process
- Receiving,
put away, and bookkeeping is 60% of the cost
- Reducing
the 60% and moving to JIT inventory reduces costs by $0.40 per case and that gets
us the $30 billion in savings that ECR promised
- Direct-to-Store-Delivery
(DSD) eliminates the need for short-term forecasting
Service levels go up
- The
costs of facilities and overhead go down (shared across participants)
- Three
possible RBCW scenarios
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 | Scenario
1: Retailers consolidate orders from their stores - Retailers
consolidate orders and send them via EDI to ES3
- ES3
builds trucks and ships product in 18 hours to Retailers' DCs
- This
would reduce inventory to 7 days
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Scenario
2: Stores order directly from ES3 - Stores
order directly from ES3
- ES3
case picks the items and ship them directly to the stores
- More
inventory is taken out of the system and even more handling is eliminated
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Scenario
3: Top items ship directly from the plant - 500
top items (35% of store sales) ship directly from the manufacturing plant to the
Retailers' DCs
- The
rest of the items are shipped to the RBCW
- Those
items are shipped directly to the store or cross-docked to the DC to marry up
with the fast movers
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| Manufacturer
Benefits - Visibility
into real live orders and actual data direct from the store
- No
longer competing on supply chain execution
- Competing
on brand, quality, and cost of manufacturing
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