Retailers are ordering smaller quantities from suppliers more often. That means more LTL shipments from small and mid-tier suppliers. The vast majority of these orders are placed by the buyer and shipped by the supplier with little collaboration, even though many of these shipments originate in the same area – and even the same manufacturer – and could have been consolidated.
The opportunities for freight consolidation are huge, but largely unrealized. One of the main reasons is that retailers are not driving it. Suppliers get orders from retail buyers and ship. On the other end, at the retailer's loading dock, dozens of LTL shipments are lined up waiting to unload, many with smaller loads that could have been combined. Freight consolidation results in lower costs to the supplier and far greater efficiency for the retailer, who receives the same volume of freight in fewer, fuller truckloads.
Here's the problem: within a retailer's organization, often the merchandising group and the logistics group don't talk. Hence, there is little recognition of the significant time and cost savings involved in creating a more efficient inbound supply chain. Buyers look UPSTREAM. They want to negotiate the best price for pickles and party hats. The retailer's logistics staff is focused DOWNSTREAM, on store replenishment.
The result is inefficiency.
Here's an example. A major CPG manufacturer that produces many different lines of product discovered it was getting separate orders from a big box retailer customer. The retailer had different buyers for cheese, for crackers, for cereals, and so on, resulting in separate deliveries from the same CPG warehouse to the same DC. To get the retailer to persuade the buyers to talk to each other and consolidate smaller orders into one big one, the CPG manufacturer offered the retailer a per-case discount.
Incentives aside, there are many benefits that retailers themselves can derive consolidating purchase orders to receive fewer, fuller loads:
- Reduced bottlenecks at loading docks
- Increased warehouse efficiency
- Reduced carbon emissions
Retailers must also recognize that, if they receive three individual shipments a week from the same supplier, suppliers are pumping more freight cost allowance into their price. Ultimately, the retailer pays for these additional costs, as does the consumer. By reducing inflated LTL costs through consolidation, manufacturers are in a position to offer a better price.
At KANE, we feel strongly that 3PLs are in a prime position to enable a dramatically new way of getting consumer products to market. By creating regional distribution campuses that store like products going to the same retailers, 3PLs create a natural staging point for collaborative distribution . Not only are they neutral parties that suppliers and retailers can trust, they also have the systems and retail logistics know-how required to manage the complex data flow requirements of collaborative distribution.
The future of consumer goods supply chains is clear. We simply must move away from the model of tens of thousands of separate lines of supply moving to the exact same retail customers. Instead, we need to create a shared infrastructure that gets the same volume of products to market with fewer touches, fewer trucks, less highway congestion and reduced carbon emissions.
But, to drive more forcefully toward this future, retailers must be a catalyst.