The following comments are based on Frank Renshaw’s observations and experience over the past 35 years in assisting major retailers plan and implement supply chain logistics strategies required in the efficient movement of products to nationwide retail store locations.

When a retailer decides to implement one or more distribution centers, it is primarily based on the following objectives:

• Improved Store Service
• Reduced Landed Cost of Goods
• Reduced Administrative and Accounts Payables Costs

Improved Store Service

In the highly competitive retail sales businesses, getting the right Goods, to the right Stores, at the right Time, and in the right Amount is critical to the profitability of each store location and the Chain. In most retail stores, the amount of space available for receiving, checking, and display of merchandise is limited and it is important that the goods be efficiently and expeditiously moved to the selling floor in an efficient manner by store personnel. Regional distribution centers are often used to consolidate the combined purchases of selected goods destined for replenishment to each of the stores located within its service territory and provide one or more of the following services prior to transport to the stores:

• Central Receiving and Checking
• Central reporting of received goods to Accounts Payables for supplier payment
• Quality Control / Assurance Operations
• Return to Vendor as required (overages, deficiencies, late arrival, unauthorized substitutions, etc.)
• Cross Docking of New Items, Promotional, and Seasonal Goods requiring immediate distribution to stores
• Movement to DC Storage and Order Selection Areas for subsequent processing, selection, and shipment
• Value Added Services (e.g. price marking, assortment building, rework, etc.)
• Consolidation of outbound store shipments on route trailers for movement of goods to stores

The above listed services result in allowing store personnel to focus their activities on Customer Service and selling activities. As a Retailer grows, and the number of store locations is measured in the hundreds and not in the tens, the more valuable the services of a properly conceived network of Distribution Centers becomes in controlling the flow of “floor ready” goods to the stores.

Minimizing Landed Cost of Goods

One of the primary roles of a strategically located Distribution Center is to minimize the total freight expense required to move goods from its network of Suppliers to the company Stores. Without a DC program, the supplier is required to pick, pack, and ship goods to each individual store in the chain. For a 500 store chain, this results in the processing and shipment of 500 individual shipments, bills of lading, and invoices that require physical handling and processing by each store. The shipment sizes to each store are often small and thus costly since the shipments are moved at the ever increasing Parcel and / or Less Than Truckload (LTL) rates. When a DC is in place, these 500 orders are consolidated into a single, consolidated shipment that is moved to the DC at a much lower transportation rate (Truckload (TL) or larger LTL shipment weights). The Retailer often specifies the routing of the inbound to DC goods in order to leverage the benefits of negotiated national contract with selected trucking carriers. Often the Retailer is never provided with information regarding the true cost of transportation when such costs are buried in the FOB Delivered pricing that is typical in Direct to Store (DSD) programs. Wal-Mart and other major nationwide retailers long ago understood the impact of implementing an efficient distribution program and have used their network of distribution centers to negotiate better deals with their Suppliers and Transportation Carriers.

Similar transportation cost reduction benefits are associated with the consolidation of shipments of shipments to the Retailers Stores. The used of regular scheduled shipments to stores allow the stores to considerably reduce the amount of time and personnel required to receive, inspect, and check-in store replenishment deliveries. The consolidation of this freight provides additional opportunity to reduce transportation costs since the DC to Store shipments are traveling at the more lucrative LTL and / or TL rates. Late arriving and / or defective goods are trapped at the DC and are never moved to the stores for processing and claims reporting. The incorporation of barcode labels applied at the DC facilitate the Store Receiving process and allow simple scan checks and eliminate the need for detailed receipt opening, counting, and processing prior to movement to the selling floor. Furthermore, the number of supplier invoices and packing lists is greatly reduced since those functions are provided at the DC.

Reduced Administrative and Accounts Payables Costs

Since the presence of a Distribution Center is responsible for all receiving, checking, and reporting activities associated with goods received from Suppliers, the total number of Supplier Invoices, Packing Lists, and Freight Bills is substantially reduced. The net effect of such a change often allows a company to reduce its administrative expenses associated with implementation of a Distribution Center program. The presence of Distribution Centers also allows improved control of inventories by allowing the delay of store allocation decisions that would otherwise have to be made at the time of cutting the Purchase Order with the suppliers. The use of point-of-sale capture systems at the stores provides the information needed to allow the Distribution Centers to more accurately determine the timing and quantity of goods requiring shipment to the stores, thus improving inventory turns at a corporate level.

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KEOGH
Integrated Supply Chain Solutions
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Palm Beach Gardens, FL 33410
information@keogh1.com
561.775.3833