The early years of the 21st century have brought with them an abundance of supply chain technology tools allowing companies to electronically communicate with more ease, speed, and efficiency than ever before.
Now, if they can only work on the more traditional forms of interaction: such as the verbal kind.
Over the past two years, four studies—two from Scranton, Pa.-based third-party logistics service provider (3PL) Kane Is Able; one from Raleigh, N.C.-based consultancy Tompkins Associates; and another by a consortium led by academic C. John Langley—have, to one degree or another, dissected the communication disconnect between shippers and 3PLs, or between shippers and their customers. The studies have different participants and scenarios. But the conclusions are essentially the same: Someone's not talking, someone's not listening, or the talker and the listener are not on the same page.
The most recent study, commissioned by Kane, prepared by Auburn University, and released in early October, focuses on the relationship between small to mid-sized consumer packaged goods (CPG) manufacturers—those with $1 billion or less in annual revenue—and the large retail and grocery chains that order and stock their products. The 24-page report paints a somber, yet perhaps unsurprising, picture of big retailers paying lip service to the needs of smaller CPG shippers.
The report, which canvassed 130 respondents at U.S. and Canadian CPG companies, said small to mid-sized companies struggle to "convince the retailer to invest energy" in a relationship with organizations their size. By contrast, big shippers get more of the retailers' ear time because they tender larger volumes, according to the findings.
"There is a lack of receptiveness [from] retailers," said one mid-sized respondent. "They are distant and unwilling to hear our concerns and ideas." Virtually all of the respondents requested anonymity for themselves and their companies.
Alex Stark, marketing director for Kane, said retailers unilaterally establish delivery metrics without first considering the shippers' needs, then impose fines on them for failing to hit the targets the retailers have arbitrarily set.
"The retailers say 'Just get [the freight] here.' There is no give and take," Stark said.
A PUSH FOR CO-LOADING
For small to mid-sized shippers, the lack of communication is keenly felt in executing inventory management strategy. Unwilling to hold excess product in their distribution centers yet loath to risk the dreaded "stockouts," retailers demand rapid replenishment of smaller lot sizes, according to the report. As a result, smaller CPG manufacturers that lack the volumes to justify a full truckload are often forced to use frequent and more costly less-than-truckload (LTL) deliveries or else risk noncompliance sanctions, the report said.
In addition, deliveries often occur on staggered schedules, causing gridlock at retailers' loading docks, respondents said.
Co-loading with other mid-sized manufacturers to build full truckloads could help matters for smaller shippers. It would even benefit the retailers' receiving operations by fostering delivery predictability and alleviating dock congestion. In the report, 44 percent of larger shippers and 36 percent of smaller ones said they have worked with the co-loading model. Most expressed satisfaction with it, the report added.
Yet the model, known as "collaborative distribution," often gets short shrift from retailers.
John Slinkard, vice president of supply chain for Sun-Maid Growers of California, whose average order weighs between 10,000 and 15,000 pounds, said he wants to implement—through his 3PLs—more fixed delivery schedules with retailers. This would give Sun-Maid the stability it needs to find compatible shippers with which it can consolidate loads. In so doing, Sun-Maid and other smaller shippers could achieve enough density to enable each to buy a portion of a truckload run, rather than use LTL deliveries that can cost three to four times as much.
However, retailers are leery of fixed schedules because the process requires them to place orders far enough in advance to give shippers and 3PLs time to arrange consolidations. Because they might not have precise visibility into their inventory needs at that point, retailers risk over-ordering and then holding overflow inventory that could potentially sit in their warehouses and DCs for months, Slinkard said.
"No one wants to hold inventory for more than a week," he said.
Postponing deliveries until the order can be perfected may behoove the retailer, but it forces companies like Sun-Maid to then ship in individual lots using LTL, he said.
Slinkard, the only participant in the report who would talk on the record, said retailers understand the shippers' dilemma, but are too focused on their own performance goals to extend any meaningful relief. "They are not really motivated," he said.
The one exception, Slinkard said, is Wal-Mart Stores Inc. According to Slinkard, Wal-Mart, the world's largest retailer, embraces the consolidation model with Sun-Maid through the behemoth's 42 grocery DCs. Slinkard said Wal-Mart will cut a purchase order to Sun-Maid's 3PLs at the same time the order is sent to the shipper, giving the 3PL time to seek out co-loading opportunities. Wal-Mart's enormous density and progressive supply chain mindset give it the latitude to go where most retailers can't or won't, he said.
Casey Chroust, who heads retail operations for the trade group Retail Industry Leaders Association (RILA) and serves as the association's point man on domestic supply chain matters, did not respond to two e-mails seeking comment. RILA counts as its members nine of the nation's top 10 retailers.
KNOWING THE LAY OF THE LAND
The most recent report is interesting in that it is coauthored by Brian J. Gibson, a supply chain management professor at Auburn who is known for his deep relationship with retailers. Gibson leads an annual RILA supply chain study and serves on its logistics steering committee. Gibson's experience with retailers prompted Kane to ask him, along with an Auburn colleague, Joe B. Hanna, to run the project.
Another unusual aspect is that larger CPG manufacturers—those with annual revenue of $1 billion or more—accounted for 43 percent of the respondents. Gibson and Hanna chose this approach to deepen their understanding of the total problem by drawing comparisons between large and small players.
Consistent with the report's central theme, 60 percent of large manufacturers said they enjoyed strong communications with their retailers, compared with about 47 percent of their smaller brethren.
In a mid-October interview after the report's release, Gibson said smaller manufacturers are "not operating from a position of power." He said bigger players, besides possessing the kind of volumes that help them get their voices heard, have the staff, resources, and technology to better respond to quickly shifting retailer demands.
The larger companies also are more likely to have employees embedded in the retailer's operations, a strategy that allows for more personal communication and, by extension, better execution, he said.
Gibson said he understands the concerns raised by smaller manufacturers, and he noted that small and big companies face common challenges. For example, all CPG companies are affected by retailer demands to deliver smaller lots on an as-needed basis, he said. The report notes that 28 percent of the larger players cited "inventory velocity" as their number one issue with retailers, compared with 24 percent of the smaller companies.
Gibson added that all CPG companies also struggle to achieve more collaboration with retailers and to get adequate face time with them.
Gibson said, however, that retailers might quarrel with many of the respondents' transportation-related grievances, such as the assertion their loading dock operations are ill-equipped to handle a large number of LTL deliveries.
In the interview, Gibson said he hadn't shared the report's findings with any retailers because there wasn't enough time between its drafting in September and its release to coincide with the Council of Supply Chain Management Professionals' Annual Global Conference in Atlanta. He said he would lobby to get visibility for it at future RILA events.
This being a Kane-commissioned report, it is hardly a shock that it hammers home the need for shippers to rely more on 3PLs to serve as a shipper's advocate in their relations with retailers.
The use of 3PLs can help shippers meet the dual objectives of enhanced efficiencies and more productive interaction with retailers, the report said. "3PLs are imperative in helping to take costs out for the manufacturer," said Gibson. "But they also have more of an ability to speak to the retailer—to get a meeting or get a callback. A small manufacturer may not have that level of a relationship with the retailer."
David Howland, vice president of land transportation services for 3PL APL Logistics, said an intermediary can be invaluable in bridging the communication divide between shipper and retailer that is becoming more commonplace. "When you have multiple players with a single coordinator, you reduce the number of communication channels and make the entire process more efficient," Howland said.
Mid-sized shippers can also leverage a 3PL's investment in transportation management systems (TMS) that would enable them to more effectively respond to retailers' changing delivery requirements, the report said. Many smaller shippers cite the costs of buying or developing an in-house TMS as an impediment to implementation.
In the report, smaller manufacturers expressed eagerness to work with retailers to set reasonable order minimums, implement customized inventory requests, and identify mutually acceptable replenishment practices. But dialogue is by definition a two-way street, and as one respondent remarked in a somewhat rueful summation: "Retailers can be difficult to deal with because they hold all the cards."