Petco is working with Instacart to deliver groceries for four-legged family members in two hours or less.
Retailers are taking control of the logistics of product delivery to warehouses and stores—but at a cost in dollars and supplier relations.
Merchandise managers, no matter how tuned into consumer demand for products that sell, have long been at the mercy of dock workers, truck drivers, and all the myriad other links that make up the transportation systems that deliver the goods. Any interruption in deliveries threatens to blow their opportunity to get products in front of customers when they expect customers to be most willing to pay full price.
Although many retailers have tried to gain control over the coordinating of shipments from multiple suppliers, reaching that control has been
illusive. For the most part, managing shipments has been under the control of the suppliers themselves. And retailers complain that even the most responsive and cooperative suppliers often don’t forward notices of exactly what they are shipping until after a truck is loaded and on its way, leaving retailers with a short lead time in knowing which actual products are coming before they arrive.
That lack of coordination often leaves merchandise managers with little time to make alternate plans for promotions and displays if a shipment arrives with products different from what they had ordered. That’s enough to make retailers want to take over responsibility for shipment of their products. And it’s what web-enabled transportation management systems are allowing more retailers to do. “This is one of the defining trends now in retail transportation and logistics,” says Jeff Woods, senior analyst with Gartner Inc. “It’s what retailers have long recognized but have never been able to manage.”
Thanks to the ability of web-based TMS applications to share real-time updates on shipments, retailers and suppliers are able to coordinate efforts like never before. And it’s not only the retailer’s and supplier’s transportation managers who may be on the same web page sharing information, but also other players as well, including the carriers and distribution centers and merchandise managers.
The results-in lower shipment costs and more accurate and timely deliveries of goods-can amount to quick returns on investment, experts say. Transportation accounts for 6% to 10% of the cost of goods, presenting retailers with an appealing cost-cutting target. Even more important for many merchants, improving inbound flows of goods can result in lower inventory levels and faster turns of merchandise. “I’ve seen paybacks in as little as six months,” says John Fontanella, analyst with AMR Research Inc.
At the same time, more retailers are realizing they can maximize their benefits from web-based transportation management systems by taking the lead away from suppliers in operating them. Whether they run a system on their own web server or subscribe to a hosted application, retailers like Stage Stores Inc. are realizing substantial savings in transportation costs while assuring the right products get to the right stores on time. “It puts us in control of when shipments are coming in and how much we pay for them,” Tina Laube, director of transportation and logistics, says. Stage Stores, which uses a hosted transportation management system from application service provider Shippers Commonwealth LLC powered by technology from RedPrairie Corp., operates 360 stores under the Stage, Bealls and Palais Royal brands.
Stage isn’t alone in realizing the benefits to be gained from taking control of transportation with web-based transportation management systems. “The motivation is all on the part of the retailer, because they want to get the volume play in controlling costs,” says Erv Bluemner, vice president of product development for RedPrairie.
Under traditional freight systems, suppliers would arrange and pay for transporting goods to a retailer’s distribution center, then add freight charges to the merchant’s bill. Until now, retailers remained outside of freight management, figuring it was easier to leave it up to suppliers. “In the past, it wasn’t a foregone conclusion that the retailer could do any better than the supplier in managing freight,” Fontanella says. “But this added visibility in web-based systems totally changes that.”
Web-based transportation management systems enable retailers to confirm what’s coming into the distribution center earlier in the ordering process. This allows them to
—route shipments through the most advantageous carrier method;
— compare shipment data with purchase orders, which enables them to assure accuracy and plan for exceptions;
— regulate flow of trucks to distribution centers and stores, which can also help distribution center and warehouse managers better plan worker schedules.
It also gives merchandise managers more control of their flow of goods and of their purchasing budgets.
Indeed, the control and flexibility granted by new web-based transportation management systems can directly impact a company’s profit margins, experts say. The problem, from the retailer’s perspective, is that suppliers often use freight as a profit center, Woods says. Suppliers with the highest volumes and most effective shipping departments can profit from volume discounts in shipping costs after charging retailers full price, he says.
Some retailers now like the idea of exerting more control over shipping as a way to boost their own profit margins through lower shipping costs and increased full-price sales. “Retailers may not get revenue directly from controlling freight, but they can realize massive cost reductions and improve profit margins,” he says.
At Stage Stores, merchandise buyers now receive reports on not only what will arrive, but also what their actual cost of goods will be. And that puts them into a better position to plan their next purchases because they know what products are not covered in the coming shipment and they know how much money is left in their spending budget. “It gives them visibility so they know what shipment receipts are coming in, what the distribution center will charge them for, so they can manage their budget that’s open to buy more products,” says Laube. “Before, they had no idea even if a vendor was shipping or not.”
“In most retailers’ experience, advance ship notices come in late in the process after a shipment has been sent, so it gives the retailer very little time to react and do any planning when exceptions occur,” says Tillman Estes, senior director of product management for Manhattan Associates Inc., a provider of supply chain execution systems. And exceptions to orders can result in lost sales when retailers have little time to take alternative measures, such as substituting different apparel fashions or promotional items for expected products that a supplier can’t deliver on time.