Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Direct Store Delivery: Mondelēz International’s Mobile Journey

Consumer Packaged Goods (CPG) | By •

mondelez logoOne of the key aspects of omni-channel retailing is merchandise availability. This pertains to the store, warehouse, and distribution center. With so much effort and focus being spent on building out omni-channel strategies starting at the store, merchandise availability within the store is of critical importance. Another company that presented at the CSCMP Annual Global Conference in San Antonio, TX was Mondelēz International. Headquartered in Deerfield, IL, Mondelēz International comprises the global snack and food brands of the former Kraft Foods. The company manages well known snack brands around the globe in different categories, including cookies and crackers (Oreo; Chips Ahoy!; and Triscuit), chocolate (Côte d’Or, Toblerone, and Cadbury Dairy Milk), and gum and candy (Trident, Chiclets, and Halls). The company’s presentation focused on a growing concern for many brands: Direct Store Delivery (DSD).

One of the major issues for a retailer is whether they have the merchandise in the store. Often, a retailer receives a truck with items and merchandise from multiple manufacturers and distributors. However, other brands choose to utilize the DSD model. The DSD model is mostly seen in the food and beverage industry, especially at smaller convenience and grocery stores. Direct Store Delivery gives the manufacturer more control over replenishment and merchandising within the store. However, one of the major problems is the case of late deliveries. If a retailer is waiting for a specific delivery to finalize merchandise assortments, and it is late, it can throw off the entire day’s plan.

DSDMondelēz International came up with a solution to this problem, and sees the solution as the future of their DSD operations: mobile logistics. The mobile logistics platform is used to manage alerts and deliveries, comply with safety and DOT requirements, track assets through GPS, and provide basic communication functions. The introduction of “late alerts” was groundbreaking for the company and its retail partners, as it allowed the merchandiser to re-prioritize their day. Rather than waiting and wondering what time the delivery would arrive, they had an updated delivery time-frame which allowed them to focus on other tasks.

According to Mondelēz International, the biggest challenge was linking the three main components to DSD: the driver, the retailer, and the customer care center. The company was able to synchronize sales and distribution communication to establish a single roadmap for all three parties. By connecting the driver with the retailer, it eliminated the need to rely on customer care to deliver the message. In the past, the driver would contact customer care to let them know they were running late. In turn, customer care would contact the retailer. This delayed the process and did not always guarantee the right information was shared. The new connection allows the driver to communicate directly with the retailer with real-time updates. The result was growth in sales and a higher percentage of on-time deliveries.

Looking forward. Mondelēz International plans to continue to build out their mobile capabilities. From driver tracking to insight into multi-day rates, enhancements are expected to be added through-out the remainder of 2014 and beyond. The overall capabilities will eventually be leveraged globally for all area that use DSD as part of their distribution model.

Guest Commentary: Thirsty for DSD Efficiency? Issues and Answers

Consumer Packaged Goods (CPG) | By •

The beverage business has become much more complex, dynamic and fragmented over the last five years. One of the reasons why is consumer taste buds are changing in both developed and emerging markets. The result is a dizzying plethora of choices to quench every thirst, from hundreds of craft beers to Chinese colas to a seemingly endless stream of flavored energy drinks.

According to a recently published survey, “Global Beverage Survey 2013-2014: Market Trends, Buyer Spend and Procurement Strategies in the Global Beverage Industry, the following are some key market issues and trends:

  • Global beverage manufacturers consider China, India, and Brazil to offer the largest growth potential among emerging markets in 2013-2014.
  • Pressure on margins, volatility and increase in input costs, and regulatory changes are immediate business concerns.
  • The top three expected key changes in business structure are: improving operational efficiency, adding new products and services and expanding in emerging markets.

In the United States, the number one challenge is keeping inventory in-stock. Direct Store Delivery (DSD) business models currently average 98.2% in-stock. If beverage companies can optimize DSD with an integrated planning and execution solution, they will have the opportunity to synchronize the salesperson, the merchandiser, and the delivery truck in the most efficient manner possible.

Complexities and Challenges
According to a Grocery Manufacturers Association study, the activity that takes the most time away from working the shelf is associates waiting to receive product at the store. There are many challenges associated with DSD, including:

  • Balancing DSD territory assets against customer demand fluctuations.
  • Underutilized fleet assets.
  • Improving collaboration of sales, operations, planning, execution and the retailer.
  • Compliance of store visits by sales and merchandisers, as well as delivery routes.
  • Inaccurate fill rates due to unique promotional driven pallet configurations required by the retailer.

And among the complexities…

  • The move from static routes to dynamic routes creates a new set of business process changes.
  • In-stock replenishments depend on harmonious synchronization between Sales and Operations.
  • Getting retailers to share point-of-sale (POS) data.

How to Handle DSD Logistics Challenges
DSD networks bypass the retailer/wholesaler distribution network moving goods directly from the point of production/distribution to the stores. Managing this process efficiently also requires a fully integrated DSD planning and execution platform.

Many beverage companies today use legacy routing and load building systems, in many cases, manual systems. Most of the beverage industry leaders – including Coca-Cola, Heineken, Molson Coors, and Carlsberg – use an ERP system known for its ability to support Consumer Good companies that are distribution-intensive in nature. They addressed the “white spaces” for DSD by embedding a best-of-breed solution that operates natively within their ERP solution, without any interfaces, and uses the ERP’s master data.

The companies referenced above have modernized business strategies and processes that make them global DSD leaders for beverage. Their businesses depend on “delivering beverage,” but behind the scenes, there are numerous logistical and operational challenges that they must address. These companies wanted to leverage their ERP ecosystem to plan truly efficient routes, build customer delivery loads with mixed-pallet configurations, and build fully-utilized delivery trucks. With their embedded DSD solution, they can identify optimal territory networks to improve customer service levels; simultaneously generate optimal next day planned routes and loads; and execute accurate case pick using voice picking to allow for a seamless flow of business data through their ERP.

Quenching the Thirst for DSD Efficiency
DSD businesses are very complex given the nature of delivering direct to the point of sales. Beverage companies make 10-20 deliveries on a given route and require compliance for on-time delivery. Lost sales due to out-of-stock situations can cause a beverage company to loss shelf space given the margins retailers manage to. Improving in-stock levels using an integrated platform is the value attained. Improving labor efficiencies in this business model is crucial because synchronization from sales order intake, to merchandising the shelf, to delivery requires true collaboration and accuracy between internal parties on an integrated platform. For global beverage companies, using technology to fill the “white spaces” has led to a reduction in miles driven, ensured that sales territories are defined to enable optimal delivery frequency, increased efficiencies in trailer utilization, and reduced load planning time and order delivery accuracy. Leaders in the beverage industry have chosen to address the complexities of DSD head-on by investing in technology that  improves operational efficiency and preserves their market leadership in an increasingly competitive global marketplace.

Bobby Miller is Global CPG Strategist at ORTEC. Bobby pioneered the innovative ORTEC solution ‘Perfect Shipment’ which utilizes demand forecasting to generate optimal shipments, enabling organizations to plan and reduce freight cost in advance of execution. He has over 25 years of expertise working in the Consumer Goods Industry and developing supply chain software solutions that help companies globally such as P&G , General Mills, Coca-Cola and Clorox. Prior to ORTEC, Bobby was Sr. Manager of Supply Chain Excellence for Georgia-Pacific, where he pioneered the concept of sales order load optimization. He has also held various positions with Kraft, Coopers Lighting, Information Resources, IRI Logistics and Manugistics. Bobby received a B.S. degree in Information Systems from Chicago State University.  He is currently chairman of the Technology Association of Georgia Logistics Society.

Guest Commentary: Is a Direct-to-Store Delivery Model Right for You?

Guest Commentary | By •

Speed is the name of the game in today’s retail landscape. How quickly products are purchased from store shelves depends on various factors, including consumer preference, special promotions, and brand recognition, just to name a few. The trick to gaining speed and increasing your inventory turns is to ensure you have a successful and cost-efficient replenishment system. Over the last few years, many consumer goods manufacturers have been increasingly using a Direct-to-Store delivery model as an alternative to their traditional wholesaler and distributor networks. A Direct-to-Store delivery model establishes a ‘closed loop’ network from the CPG manufacturer’s warehouse to various retail outlets, making multiple stops before returning to the point of origin.

Below are a few tips of how you can set up a Direct-to-Store Delivery model for your business:

  • Create the Demand Profile – Understanding who your retailers are, and what their demand (i.e., order volume) looks like, is critical.
  • Routing Deliveries – Once the right mechanisms are in place to capture the daily demand profile, you can map the optimal route for each day’s delivery. The route plan should take into consideration variables such as traffic patterns, speed limits, distance and time calculations, and Hours of Service for drivers.
  • Loss Prevention – Because DSD involves multiple stops at retailer locations, building in processes to prevent and monitor product theft is very important. In addition to GPS and security cameras, training drivers on identifying suspicious behavior is paramount.
  • Capturing Proof of Delivery – A variety of new technologies can enable electronic proof of delivery, primarily using handheld devices. This has an incredible impact on Order-to-Cash cycle time, reducing it to a matter of hours.
  • Continuous Improvement – Using information captured through the demand profile, route designs, and delivery information, you can set a baseline for performance. This way, you can measure the effectiveness of incremental and ongoing improvements to the network, through cost savings and increases in efficiency.

Is a Direct-To-Store Delivery model right for you?
If your products and supply chain have these requirements, you may be a good candidate for this model:

  • Control of the deliveries is very important. For example, delivery windows are small or limited to specific times.
  • A large portion of your customer base are small retailers like convenience stores that cannot store excess inventory and require frequent replenishment.
  • Direct contact with retailers is a critical element to customer satisfaction, and therefore, drivers making the delivery broker the retailer relationship.
  • If goods are not on shelves, you lose a sale and, consequently, market share. For example, if one soft drink brand’s products are not on retailer shelves, then the consumer will buy the competitive brand as their second choice.
  • Security or product theft is an issue, especially in the case of high-value goods like tobacco, alcohol, and jewelry.

Is your organization following a Direct-to-Store Delivery model and, if so, what benefits are you seeing? Post a comment and share your experience and viewpoint.

Guy Toksoy is Vice President of Ryder Canada’s Supply Chain Solutions business segment. He is responsible for directing the development and operations of logistics solutions for Ryder’s global and domestic customers. Prior to joining Ryder, Guy held progressively senior positions at APL logistics, including Head of Logistics operations with responsibility for the operational and sales activities of all Canadian services. His career also includes progressive senior management positions at Cebra Inc. and GATX Logistics, as well as several entrepreneurial companies. Guy has a Bachelor of Science degree in Mechanical Engineering from Middle East Technical University, a Master of Science degree in Mechanical Engineering from University of Cincinnati and an M.B.A. from Miami University.

Nestle DSD Makes Optimal Production Sourcing Decisions

Food & Beverage Industry | By •

Nestlé USA has a Direct Store Delivery (DSD) division focused on several of its frozen food brands, including Edy’s and Dreyer’s (ice cream) and Digiorno, Tombstone, and Jack’s (frozen pizza). The company’s move to DSD began in 2006 when it acquired Dreyer’s Grand Ice Cream and the scope of its operations has grown since acquiring the pizza brands.

DSD can be a competitive route to market. Food companies often pay to have their products placed on retailer shelves. But if a food company has DSD capabilities supported by an efficient supply chain organization, it doesn’t have to “pay to play” (or at least not to the same extent). This is particularly true for smaller stores and chains.

Brad Alford, Chairman & CEO of Nestle USA, gave a presentation last September where he provided some facts about Nestle’s DSD operations. For its ice cream brands, Nestle pre-sells and pre-picks items before delivering them to freezers at the back of the store. Later, merchandisers arrive at the store, pull the product out of the freezer, and bring it to the front of the store. Merchandisers visit the stores multiple times a week. This business generates $2.2 billion in annual revenue and is supported by 2,200 full-time employees.

In contrast, pizza DSD is based on a “rolling inventory model,” which I assume means the drivers arrive at the stores, check the inventory, and then deliver what is necessary. This business generates $1.9 billion in annual revenue and is supported by 1,500 full-time employees.

Nestle has the fourth largest, company-owned DSD system in the US food industry and it is by far the largest in frozen foods. To support this business, the company has 30 distribution centers and about 200 cross-docks. This is a large number of warehouses, but in DSD you need warehouses close to the stores.

At JDA’s user conference last month, two Nestle DSD supply chain managers gave a presentation on how the company is using a strategic network design solution from JDA—Production & Sourcing Optimization—on a quarterly basis to determine optimal sourcing by lane. In the ice cream DSD supply chain, transportation and frozen storage costs are high. Consequently, Nestle has redundant plants and production lines across the US. The network is made more complex by the fact that demand for ice cream is seasonal (greater demand during the warmer months). Thus, the decision about how far ahead to forward load production and where production should be done is complex.

The JDA solution answers the question, “Where should we make a product based on storage, handling, manufacturing, transportation, service, and inventory carrying costs?” Service costs are based on a penalty logic that is parameterized into the solution. The thinking is that retailers don’t like it when their shelves are empty, and some retailers even impose fines. The solution can also look at the profitability by case of the different SKUs. In instances where demand is outstripping supply, the solution can determine which cases should be cut.

Running these plans quarterly is a bit unusual; strategic planning is typically done on an annual basis. In Nestle’s case, however, demand changes are significant enough that doing it quarterly makes sense.

In Nestle’s first year using this solution, the company saved $5.5 million!

To get there, the company had to move to centralized production planning and it had to create a centralized strategic sourcing group to manage these long range plans (the group contains some math-savvy planners – i.e., industrial engineers rather than just business undergrads). The company also had to clearly explain to factory managers, at its annual planning meeting, the reasons behind its sourcing decisions.

You can’t argue with success. Over five million dollars in annual savings—now that’s how I spell “ROI”!

(Note: JDA Software is an ARC client)

Coca-Cola Enterprises: Better Trucks, Happy Drivers, Lower Costs

Food & Beverage Industry | By •

I recently wrote about some of the thinking and core concepts behind achieving the lowest supply chain costs in a Direct Store Delivery (DSD) supply chain (see “Direct Store Deliveries and Lowest Total Supply Chain Costs”). Today, I will highlight how Coca-Cola Enterprises (CCE) has actually put these concepts into practice. I’d like to thank Mike Jacks, Sr. Manager for Logistics Systems at CCE, and Brian Wilkie and Brian Crane, Logistics Business Analysts, for taking the time to walk me through their process.

Coca-Cola Enterprises, based in Atlanta, Georgia, is the Coca-Cola Company’s largest bottler. Its products include carbonated beverages, like Coca-Cola and Diet Coke, as well as energy drinks, bottled water, teas, and juices (e.g., Powerade, Dasani, Gold Peak and Minute Maid).

Historically, a large part of CCE’s fleet was composed of side-load trucks that were loaded with several full pallets of the same stock keeping unit (SKU). As products proliferated, CCE found that for many stores it was no longer possible to load full pallets of a single SKU. The company went from delivering 12-15 SKUs per order to dozens of SKUs. Further, as more retail chains started using EDI for purchase orders and for receiving advanced shipping notices (ASNs), CCE found that these retailers were less likely to place orders that supported “main loading” (bulk picking).

Coca-Cola Enterprises Side-Load Truck (Source: CCE; click to enlarge)

A traditional DSD beverage delivery system relies on side-load vehicles with 10-16 bays. A side-load truck would visit several stores, and at each stop, the driver would stock the shelves with whatever product that store ordered. The warehouses would pick enough pallets of a SKU to support all of the stops. In effect, the driver became the order picker. He would open one bay and select the cases off one pallet, open another door and pick the cases needed of a second product, and so forth until the store’s order was complete.   

Now, however, because of continued SKU proliferation (selling not just carbonated drinks, but all those power drinks and juices too), CCE is increasingly “pocket loading”—i.e., picking by order by stop. In other words, CCE is building mixed-SKU pallets that have the various products, in the right quantities, necessary to fulfill a particular store’s order. CCE is using two solutions from Ortec to help it build these pallets. These solutions help CCE decide which products to load on which trucks, which trucks should visit which stores, and then determine how to build pallets efficiently. The pallet-building logic takes into account case dimensions, product crushability, and product affinities (i.e., ideally, products that are located near each other in the warehouse should be picked onto the same pallet to minimize the travel time of pickers).

To better support store-level picking, CCE began buying 28-ft.and 35-ft. order fulfillment system (OFS) trucks eight years ago. These trucks have rear-loading doors and are wider than standard bulk-delivery trailers, so they have enough space for a narrow aisle up the middle for the driver to walk down. These trucks allow CCE to load a store’s orders into specially built carts that are fastened to the sides of their trucks. 

Coca-Cola Enterprises Order Fulfillment System (OFS) Vehicle (Source: CCE; click to enlarge)

While these trucks are reverse loaded (the order for the first stop is loaded last), the middle aisle supports flexible delivery sequencing. If a driver gets to a store whose dock is full, he can skip that stop. The middle aisle allows the driver to select the next store’s orders without having to shuffle goods around inside the truck.   

OFS trucks will not fully replace CCE’s side-load trucks. In some metropolitan areas, the OFS trucks are too wide for the narrow streets.  However, OFS trucks have a number of advantages. Many are hybrid trucks with Eaton engines that are 30 percent more fuel efficient than traditional trucks. CCE believes it has the largest hybrid fleet in North America. Another advantage is that while these trucks support store-specific carts, they can also be loaded with palletized orders for large customer deliveries. 

Building customer-specific mixed-SKU pallets in the DC is more expensive for the warehouse. But CCE’s time and motion studies show that its overall end-to-end costs are lower because its drivers are more productive. Further, OFS trucks allow CCE to hire more experienced drivers, and because their job is easier, driver retention is improved. Drivers also don’t have to do as much product lifting or have to open and close many bay doors, making them less prone to injury. While the recession has made hiring and retaining drivers easier, CCE expects this will be a challenge again once the economy recovers.

In short, better thinking about what kinds of trucks it needed in its fleet has allowed CCE to do a better job of optimizing its end-to-end supply chain.

Direct Store Deliveries and Lowest Total Supply Chain Costs

Labor | By •

From a supply chain perspective, it often makes sense to have the warehouse work harder, so that downstream recipients of shipments don’t have to work as hard. If certain tasks can be done more cost efficiently in the warehouse, then those tasks should be performed there. 

However, there are instances where the warehouse can actually work less hard and still provide lower total supply chain costs. A recent article by Derek Curtis in “Raising the Bar,” HighJump Software’s blog, provides a concrete example of this, as well as the tradeoff logic that is employed. 

Side-load trucks are commonly used by manufacturers that do direct store deliveries (DSD). A delivery truck will visit several stores, and at each stop, the driver will stock the shelves with whatever product that store ordered. The traditional picking practice is to build a pallet based on a store’s order. So, if a particular store orders ten cases of one stock keeping unit (SKU), thirteen cased of another SKU, and seven cases of a third product, then the pallet is built with those different SKUs.

In DSD, it might make sense to do “aggregate” picking. So, if a truck will be delivering goods to seven stores, and Store 1 has ordered nine cases of a particular SKU, Store 3 has ordered five cases of the same SKU, and Store 6 has ordered twelve cases, then a warehouse worker will pick twenty-six cases of that SKU at the same time despite the fact that the SKU is being used to fulfill different orders. Obviously, a picker will be more productive in aggregate picking because travel time is reduced. 

But from a total supply chain cost perspective, does this really make sense? The labor costs for delivery drivers are higher than for warehouse pickers. If orders are palletized by store, it makes sense that the driver would be able to complete store deliveries more quickly because he wouldn’t have to pick the store orders out of the truck.

But the math is not necessarily so straight forward. As Derek wrote in his piece:

If your driver takes an 8 hour shift to deliver while handling aggregate loads, do they really cut their time down to 7 hours (or less) if you provide them with palletized loads? Compare this with your warehouse staff where you have active management in house and stop the shift at the end of the work (or redeploy to other tasks). This type of control over a delivery workforce is difficult to achieve.

Further, when loads are palletized by store order, they are shrink-wrapped to avoid damage. 

Now you have to account for an additional time and materials component when comparing the costs between aggregate and palletized.

Finally, there is the issue of vehicle cube utilization:

This is probably one of the most basic arguments against palletizing. Utilization of vehicle cube is obviously much higher while building aggregate… by improving cube utilization you may be able to remove vehicle(s) from the road. 

In summary, while the principle is clear—you should seek to hit delivery targets at the lowest total supply chain cost—implementing the principle is not always straightforward. Making the right choice can involve a creative approach to processes, time and motion studies, and trial and error.

(Note: HighJump is an ARC client).

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