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Retail Consolidation for Power, Performance and Profitability A Strategic Solution for Effective Vendor Compliance Management
Written by: Seraj Farooqui Peter Galicz Edited by: Denise Stepp
Introduction Problem Statement TheSolution How Retail Consolidation Works Implementation Summary About Us References 2 3 3 3 5 7 8 9
Introduction The past five years have been particularly challenging for firms across the retail and consumer products industry. Whether impacted by the global economic crisis, oil price volatility, or the rising cost in labor overseas, the industry environment continues to be driven by the external forces that have changed the economic landscape. For wholesalers and manufacturers alike, remaining “competitive” requires a strategic effort to improve operational efficiencies by streamlining both sourcing and procurement processes. This also remains true for power retailers, like Wal-Mart and Target, who maintain strict inbound policies to optimize product flow and ultimately ensure an “Everyday Low Price.” When partnering with a multi-million dollar retailer, the notion of power is a direct result of dependence. Cyclically, the extent of dependence is induced by the perceptions of power. For many manufacturers, these relationships may represent 70-80% of sales revenue. Hence, when a power retailer increases their supply chain and logistics demands, manufacturers are left scrambling to ensure compliance. In the case of Wal-Mart, failing to comply with demands for scheduled deliveries, special packaging, and advanced shipment notices, etc. is not only a mean of lost revenue, but lost business. The need for effective vendor compliance management is further amplified by WalMart’s own Supply Chain Reliability Program. Coined as a Must Arrive by Date (MABD) policy, this initiative attempts to maintain Wal-Mart’s efficient supply chain operation by driving greater reliability in the delivery of inbound products. If vendors fail to achieve at
least 90% compliance, in any month, they are assessed reimbursement charges of 3% of the cost of goods sold. Problem Statement Meeting the supply chain and logistics performance expectations of a power retailer can deter a firm from its core competencies. The traditional method of fulfilling retail orders, for most companies, requires them to ship and manage multiple less than truckload (LTL) shipments to the retailers’ regional distribution centers. Begging the question, how can manufacturers and wholesalers effectively combat the threats of vendor compliance chargebacks and identify additional cost-savings in warehousing and transportation spend? The Solution Retail Consolidation Programs have emerged as competitive weapons in helping increase on-time performance and ensuring survival in the everchanging dynamics of the retail market. The purpose of this whitepaper is to briefly outline Retail Consolidation Programs and review the strategic benefits and implementation processes. How Retail Consolidation Works Retail Consolidation Programs allow retail vendors to ship larger, more cost effective truckloads to strategically positioned consolidation centers across the continental United States. From these locations, inventories and safety stocks are maintained to fulfill orders to retailers or shipments are immediately cross docked with other would be LTL orders to compose one, 100% retail compliant, truckload (TL) shipment. In doing so, suppliers experience the outbound advantages of TL shipments, while
reducing logistics and warehousing responsibilities. Conceptual Benefits to Suppliers • • •
Improved lead time on orders Reduced transportation costs Increased visibility through integrated TMS and WMS Improved on-time performance Less handling equals fewer damages and shortages Systems integrations,...
References: Heaney, B. (2011). Outsourced Logistics vs. In-house: Comparisons and Strategies. Boston: Aberdeen Group.
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