Pool distribution, the practice of distributing freight from multiple shippers from distribution centers to store locations using a network of specialized truckers, is not new. Nor is it generally on many logistics radar screens. But with brick-and-mortar retailers continually challenged to cut costs and improve store service, the potential value of pool distribution might be worth a closer look.
The model is as elementary as it is somewhat long in the tooth: Specialty retailers, companies that hold all their stock-keeping units (SKUs) on store shelves as opposed to mass-market retailers that have back-office space to hold inventory, arrange for their cartons to be moved from their DCs to pool distribution points. The pool distributor receives the shipments, processes and sorts the packages based on their final destination, and then loads up trucks for deliveries to the customers' stores within specific geographies.
Because distributors "pool" a sufficient density of freight from multiple retailers to build full truckloads, each retailer achieves economies of scale it couldn't get with less-than-truckload (LTL) or parcel service. The pooling model extends those efficiencies to regional deliveries, which benefits retailers whose store count in an individual market isn't dense enough to justify full trailerloads. For example, by leveraging eight regional pooling nodes that each feed multiple individual markets, a specialty retailer can have national coverage at a significant discount to using other forms of transport or utilizing a private truck fleet.
The pool distribution model is built around the concept of catering to the unique needs of each specialty retail customer. A pool distributor can deliver into multiple time windows. It can move merchandise in the morning and non-merchandise such as displays in the afternoon. It performs what is known in the trade as "trap and hold," where product is shipped to an offsite location and held there until it is authorized for release.
Most important, it must be able to execute every movement with precision. That's because for specialty retailers that hold no buffer inventory at the store level, stockouts are verboten. "Specialty retailers compete at the store, not in the supply chain," said Jeffrey S. Berichon, senior vice president, product strategy-retail distribution for Canadian logistics software giant Descartes Systems Group. Berichon founded BearWare Inc., a Cleveland-based pool distribution and technology company that Descartes acquired in 2015.HEALTHY SAVINGS
GNC Holdings, a Pittsburgh-based retailer of health and nutrition products, switched entirely to pool distribution in 2013 after years of running its own fleet between four distribution centers and 4,200 stores. Today, GNC's nationwide pool network consists of 12 distributors that operate out of 54 terminals.
GNC's DC workers fill trailers using a "fluid load" process, where cartons are placed directly on special conveyors leading into the trailer and software sorts them for their specific delivery markets. The fluid load, or "shot-gunned," method (so named because of the speed at which the cartons move on the conveyors into the trailers) is considered the fastest way to maximize throughput in a pool distribution process. The tractor-trailer is then dispatched to the designated pool distribution point, where the trailer is broken down and the cartons sorted and reloaded for final delivery to the stores.
Gregg Sayers, GNC's vice president of logistics, declined to quantify the cost savings from the switch to pool distribution but said they "have exceeded our expectations." Much of the savings came from shedding its private fleet operations, especially the time and expense associated with procuring return loads after deliveries at the pool points, he said.
Sayers had nothing bad to say about GNC's private fleet model, which he said did right by the company for many years. However, pool distribution gives GNC "better throughput from the DC to store," Sayers said. "It makes sense economically for us."SOFTWARE AS THE CATALYST
The catalyst for GNC to make the switch, perhaps unsurprisingly, was technology, specifically the software developed by BearWare. Unlike most specialty retailers, GNC staffs its stores with just one or two employees at any time. Floor staffers are expected to be available for customers, and no store has the luxury of dedicated back-office personnel. Because shipment scanning is not done in-store, GNC relies on the Descartes system to track shipment status from the DC to each store location and to help manage the claims process, Sayers said.
The software provides stores with advance delivery notifications so managers can anticipate staff resources needed to receive and unpack the cartons, and schedule additional labor if necessary, Sayers said. It also directs pool drivers to offload the cartons at the exact location inside the store where the retailer wants it, he said.
Because of GNC's lean store staffing policies, robust data flows are required to support reliable delivery execution within tight time windows, Sayers said. "We couldn't do pool distribution" without the Descartes system, he added.
Technology has enabled pool distributors to build additional value and flexibility into what is already a specialized, though sometimes uniformly practiced, form of distribution. "Traditionally, a pool distribution model was a 'vanilla' model. Everyone had basically the same process," said Mike Flynn, CEO of Freight Systems Inc., a Seattle-based pool distributor with six warehouses and about 100 trucks operating in the Pacific Northwest and the Western U.S. "Technology has had a large impact on what can be done and how it can be done."
As is the case with any logistics model, pool distribution doesn't work for everyone. The ideal customer ships 50 or 60 cartons per store and has adequate store density in each market. The model is probably ill suited to a retailer without sufficient store exposure, or with too few shipments. On the other end, a specialty retailer with, say, 400 to 500 cartons per store delivery might be better off with a dedicated pool-like operation because pool distributors would rather not have one customer absorbing a disproportionate amount of space on a given trailer.
The stakes in physical retail remain huge. Despite e-commerce's explosive growth, brick-and-mortar still accounts for around 90 percent of total U.S. retail sales. Each specialty retailer has its own e-commerce platform, which augments physical sales in feeding the organizational beast. That said, a company like Amazon.com Inc. is taking no prisoners, and Amazon's strategy of selling and delivering everything on the planet as quickly and cheaply as possible is only gaining momentum. Pool distribution may not be the next wave of retail delivery. After all, the wave has been in the water for about 30 years. Still, anything that sharpens a specialty retailer's competitive edge is probably worth considering.