I was recently briefed by the executive leadership team of the GENERIX Group, a leading supply chain execution software vendor headquartered in France. One of its customers is Carrefour, the second largest retailer in the world. Carrefour is ramping up consolidation centers (CC) in Europe. The retailer currently has eight centers operating in France with twelve more in development. Carrefour is also conducting a network design study to determine where to locate additional centers throughout the rest of Europe. Individual centers are now receiving goods from about 100 manufacturers. Once its network of CCs in France is complete, Carrefour will be receiving goods from 580 suppliers.

The concept behind these centers is fairly simple. They are designed for smaller suppliers. These suppliers ship their goods to a consolidation center run by one of Carrefour’s third party logistic (3PL) partners instead of directly to a Carrefour distribution center (DC).

Smaller suppliers whose goods don’t sell through quickly in stores present problems to retailers. The retailer can take truckload shipments, but then it has to warehouse the goods for longer periods of time, incurring increased inventory carrying costs and spoilage. Or the retailer can take less-than-truckload shipments, which raises the cost of the goods, clutters the DC yard, and makes the receiving process more labor intensive. If a consolidation center covers a broad enough region, both goals can be achieved. The consolidation center can receive full truckload shipments and also receive shipments more frequently. 

On the outbound side, the 3PL takes orders from the retailer, Carrefour in this case. The truck is loaded with individual pallets from different manufacturers, the correct value-added services for the retailer are performed (e.g., retail specific labels, pallets, and electronic commerce), and the goods are shipped to the retail DC at truckload rates. If the process is well synchronized, many of these goods can flow through the retail DC to outbound shipping without having to be put away and then repacked.

I came across a presentation online that was delivered at the ECR Europe Conference in Barcelona last June that explains the process in a bit more detail.    

• The manufacturer is responsible for the cost of shipping the goods to the consolidation center, as well as the storage costs in the center.
• The manufacturer is responsible for goods being available in sufficient quantities in the consolidation center. In other words, the manufacturer has to certify the service level, not the 3PL.
• The manufacturer needs to use EDI (for orders, invoices, RECADV, etc.) to communicate with the retailer.
• The manufacturer and 3PL are expected to sign a logistics contract specifying their joint responsibilities.
• The 3PL is in charge of receiving, storage, preparation and (sometimes) transportation to the retail DC. 
• The 3PL must have dashboards that display daily operational information and key performance indicators.
• Carrefour is responsible for procurement. Purchase orders are sent by the replenishment team to the DC. 
• This Carrefour team is responsible for synchronizing the flow of goods into its DCs. It also does replenishment planning.
• Carrefour pays the manufacturer for the goods once they are shipped out of the consolidation center.
• Carrefour pays for the transportation from the consolidation center to its DCs.

GENERIX is having fruitful conversations with 3PL and retail clients about CCs that serve more than one retailer. In other words, a small manufacturer would ship its goods to a single CC and that center would ship the goods to multiple retailers.  A consolidation center that can support more than one retailer offers real value to manufacturers. It increases the chances they can ship full truck load and reduces the number of partners they have to interface with.

GENERIX supplies the collaborative solution for the 3PL on an on-demand payment schedule. The solution encompasses the warehouse management system, as well as an e-communication platform between the 3PL and Carrefour, and between the 3PL and the manufacturers. 

Distribution based on consolidation centers is a good idea (just ask Walmart that uses them). Having consolidation centers that can serve multiple retailers is an even better idea.