Pool distribution as a store replenishment strategy is more relevant than ever because of decreasing margins and the need to move goods quickly to stores in reaction to changing consumer demand. Pool distribution is a great example of the power of the “network effect”, as it leverages numerous retailers and pool operators to substantially lower distribution costs and increase delivery frequency. While pool started with specialty retailers, it is applicable across much of the retail market and in other distribution-oriented industries. Retailers and distributors should consider pool as part of their strategy to lower distribution costs and improve store replenishment performance.
Pool distribution is unique in that retailers share a common distribution network of logistics services providers who use a common process and technology to manage the flow of goods from the retailer’s central DCs or suppliers to their receipt in a store’s back room. Delivery density and frequency drive the pool’s transportation savings and better service. For example, rather than 5 retailers having 5 separate LTL or parcel deliveries to a mall on one day, those 5 retailers share a single delivery where the 5 stores get serviced as one stop. Stores can be replenished more often because the volume of goods moving through a dedicated transportation network is higher in that lane (e.g. pool point to mall). Essentially, pool delivers the higher speed of parcel with the lower cost of LTL (see Figure 1 below)
Parcel and LTL–based replenishment are not the only candidates for replacement with pool distribution. Private and dedicated fleets are also opportunities. Depending upon the store density and proximity to distribution centers, the cost to service stores on a frequent basis may be prohibitive. Equally if fleet-based delivery is optimized for lower costs it may be too slow resulting in too much inventory in the stores, or worse, higher occurrences of out-of-stock merchandise. In most cases, the savings opportunities for pool distribution are large. Retailers moving to pool distribution from parcel and private/dedicated fleets have seen pool distribution significantly contribute to transportation cost reductions of as much as $20M annually.
Because of the comingling of freight, the tracking of goods has to be absolute and highly granular (e.g. carton level) with complete visibility for the retailer and pool operator. The pool process and tracking starts when the retailer sends an Advanced Shipment Notice (ASN) to the pool operator detailing at the carton level, exactly what goods are expected to be inducted into a pool point. All cartons are scanned at each touch point from pool receipt to staging, loading and store receipt. If there is an exception (e.g. missing carton or wrong carton), it is reconciled at each touch point. This approach helps to ensure that there are minimal product losses and claims, which benefits both the retailer and the pool operator. A common pool management system for the pool network and participating retailers helps standardize the process and provides uniform visibility through the ASN to store receipt lifecycle.
The benefits of pool distribution extend beyond faster and lower-cost store replenishment. Retailers can better optimize inventory as they have complete visibility to what goods are where (e.g. in transit or received at the store) and understanding of replenishment lead times as they know how quickly goods are moving through the network. Fast moving and peak season inventory can be staged at the pool operator for more timely replenishment to minimize out-of-stocks. Store labor utilization can improve as pool operators can provide delivery schedules with defined and tighter delivery windows.
With over 30 years of evolution, pool networks have grown considerably in North America. Almost all of the population of North America can be reached within a day. Descartes’ pool distribution solution helps support a network of over 150 pool locations that delivers over 140 million cartons annually (see Figure 2). Because of the standardized processes and technologies and domain expertise that exists in pool distribution, retailers can quickly take advantage of the infrastructure that already exists to quickly convert some or all of their store replenishment operations to pool.
While ecommerce continues to grow, stores still represent the vast majority of the revenue generated for retailers and they need to be serviced more cost effectively and quickly. Pool distribution is a great opportunity for retailers – and distributors, looking for those 7 and 8 figure transportation cost reductions while at the same time dramatically shortening replenishment cycle times. This is why pool distribution is more relevant than ever. How has your distribution organization benefitted from pool distribution? Let me know.
As Executive Vice President, Marketing and Services, Chris Jones <CJones@descartes.com> is primarily responsible for Descartes marketing activities and implementation of Descartes’ solutions. Chris has over 30 years of experience in the supply chain market, including the last 10 years as a part of the Descartes leadership team. Prior to Descartes, he has held a variety of senior management positions in other organizations including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director Operations & Technology for Kraft Foods.