Deb Navas, Editor at Large,
Supply Chain Manufacturing & Logistics

The increasingly global nature of consumer packaged goods manufacturing has had an impact on every supply chain link, especially the one that gets goods to market.

WAREHOUSE MANAGEMENT SOFTWARE that integrates with material handling equipment speeds fulfillment in complex, high-volume, retail distribution environments.

Roles are blurring in the retail, wholesaler, and distributor supply chain arena, and the definition of what the “distributor” now does is not so easily defined. Big retail operations—Wal-Mart naturally springs to mind—primarily use their own distribution networks, though they also use wholesale distributors.

“By the classic definition, the wholesaler/distributor sells goods. Logistics service providers do not. Manufacturers consider [wholesalers and distributors] to be a critical channel for getting goods to certain parts of the market. A wholesaler may provide delivery logistics services, but usually contracts for this service via 3PLs or carriers,” notes Greg Aimi, AMR Research’s director of supply chain research.

Apparel, food and beverage, books, over-the-counter drugs, home appliances, and industrial products such as computers, telecommunications, and automotive after-market products that are used by consumers also tend to use wholesalers/distributors who own/manage the inventory. Retailers and Consumer Packaged Goods (CPG) manufacturers are outsourcing selected distribution functions to 3PLs, transportation providers, or package delivery/logistics service providers such as UPS. All retail distributors, however, whether they own product or are responsible only for managing and moving it, have one overriding goal in common: moving it as quickly and cost-effectively as possible to the right destination.

Tools You Can Use for Basic Distribution
“Retail distributors work on a variety of push/pull models,” explained Chris Heim, president and general manager of 3M’s HighJump Software. “Historically with retail you see the push model, which is a sophisticated form of cross docking. For example, specific store distribution for a sea container from China that arrives at the DC receiving dock has already been predetermined. This ‘distro’ is in the warehouse system and is automatically referenced at receipt unloading, and the goods are conveyed and diverted to the appropriate trailers for distribution to the stores. That delivery leaves very little footprint in the DC.”

“The idea is to get product into stores and on shelves as fast as possible,” added Delbert Merritt, HighJump product manager. “Product obsolescence and time to market are a couple of the driving factors behind incorporating JIT/lean concepts to distribution.”

The tools retail distributors must have, according to Merritt, include a flexible Warehouse Management System (WMS) working in conjunction with transportation management, yard management, order management, labor management, RFID, vendor managed inventory, and supplier portals—the whole supply chain execution suite. “People are looking for best of breed supply chain execution solutions that easily integrate with their other business solutions,” Merritt says.

Dealing with Extended Supply Chains
However, with the advent of outsourced manufacturing, supply chains have become extended, in which case distribution becomes the differentiating factor, according to Heim of HighJump Software. “The 3PL market is growing, but it’s been out there for a while,” he said. “The mass advertising by major brand names like UPS has just given it higher visibility among the general population.”

Both Heim and Merritt concur that supply chain execution and supply chain management solutions probably should be deployed as enterprise solutions. “And you want all the pieces of your SCE/SCM to communicate seamlessly, in the same way that ERPs have traditionally done with sales, financials, and HR,” Heim said. “For instance, you want your WMS, LMS, YMS, and other applications working together seamlessly and across your whole corporation. You then want these solutions to easily integrate to your ERP.”

HighJump says its biggest opportunity for growth is to continue to expand its footprint into additional SCE/SCM solutions that cover the whole supply chain, from source to consumption.

Making On-Time Delivery
One HighJump customer needing sophisticated distribution capability in a hurry was Dorfman Pacific (Stockton, CA), an 80 year-old manufacturer and distributor of cowboy hats and other headwear. The company has survived and prospered based on strong customer service, product quality, competitive prices, and on-time deliveries. Healthy growth over the last decade, however, was creating some challenges at the on-time delivery end.

“Everything, pick, pack, and ship, was paper-based, and we had people driving around all over our 300,000 square feet of warehouse, chasing down orders,” said Mark Dulle, director of ITS for Dorfman Pacific. “We were paying about one quarter million [dollars] in temporary work wages. We have a two-day ship service level, and we couldn’t do this on the paper-based system. The DC needed to accommodate growth, we’re currently at 20 thousand SKUs, and get to the point where we could pick by pallets, cases, and items across multiple zones, and ship from multiple doors,” he said. “About 50 percent of our business is for the big box chains and the other half for mom and pops. We also fulfill at the item level for catalog customers.” The company selected HighJump’s Warehouse Advantage WMS.

“The big challenge was the ability to plan daily,” Dulle explained. “Now we can analyze orders downloaded from the ERP, calculate replenishment needs, and setup speed bins for picking and other operations. We also needed flexibility, because we’re doing fulfillment for two or three customers where we act as their warehouse, basically doing 3PL, as well as value-adds like custom invoicing, price ticketing, labeling, and repack.”

The automated WMS has really improved volume picks, he noted. “One touch labeling and they’re out the door. We’ve won an award for being the fastest shipper in the industry. Our target was to eliminate the temp labor—we just went through our big season and didn’t flinch, and we’re on target with our labor budget.”

Bypassing Distribution Altogether
For those companies who outsource manufacture and who lack a distribution infrastructure, UPS’s Trade Direct program will receive and consolidate/deconsolidate their product overseas and ship it direct to stores or customers for them. The service also includes customs clearance, ocean or air freight management, and port services.

“There’s a fairly aggressive move afoot among larger and mid-size retailers to deal direct with offshore manufacturers, and avoid wholesaler margins,” said Randy Strang, UPS’s vice president, retail sector. “Typically, anywhere from 10 percent to 30 percent of offshore goods are directly sourced by retailers, and that percentage is growing. Cost is driving it: savings of up to 5 percent net can be realized by sourcing directly from the manufacturer. We’re seeing mid-tier companies finding ways to direct source as well.”

From UPS’s viewpoint, the trend opens up a new group of customers for many of its SCS products including Supplier Management and Trade Direct services. “The mid-tier isn’t going to have the infrastructure to deal with global distribution. The longer the supply chain is, the more opportunity for us.” Nonetheless, wholesaler/distributors won’t disappear. “They serve a valuable niche supplying last-minute product and managing inventory and stock,” said Strang. “Retailers of lower-value goods rely on distributors.”

Wholesaler Distributors
As we move from domestic to far more complex global supply chains, however, the number of channel partners involved increases exponentially. “Wholesaler/Distributors cross retail sectors, typically industries including apparel, food and beverage, and home appliance and accessories,” says Qin Deng, a research analyst for AMR Research. “Overseas manufacture has had a significant impact on wholesalers in extending the supply chain and consequent issues such as longer lead times, floating inventory, and unreliable delivery.”

“Also, as product comes off an Asian production line costing only cents on the dollar, wholesalers are under increasing pressure to lower their prices accordingly while sitting on inventory longer,” Aimi said. “Interestingly the wholesaler/distributor has an opportunity that the manufacturer doesn’t: it can substitute lower-cost product from a different source. By doing so, the wholesaler can increase profitability or use the price break to increase market share.”

“For small and mid-size companies, wholesaler channels are more critical,” Deng said. “Also, some low-cost countries’ manufacturers don’t have direct access to retailers in western countries and depend on the wholesale channel for sales. In Europe, some chains such as Tesco and Metreo are developing their own brand in various products, and this will negatively impact wholesalers.”

Visibility in Support of Value-Added Service
“Fundamentally, the value that wholesale distributors have is making the purchasing and supply of goods easier for the retailer than if they did it themselves,” explained Julian Archer, who manages the marketing for Intentia’s distribution sector. Intentia International, headquartered in Stockholm, is soon to become the world’s fourth largest enterprise software provider after the completion of its merger with Lawson Software. The company provides end-to-end enterprise systems for mid-market manufacturers, wholesalers, and distributors primarily serving apparel, food and beverage, and asset-intensive industries such as aerospace and defense.

ave to make sure their entire supply chain is integrated—from forecast to production, to assembly houses in Europe, to global distribution centers.” Archer says Intentia’s Movex ERP system architecture is Java-based, enabling the level of interoperability that companies require.

“Two trends in wholesale distribution need to be supported,” he says. “The provision of an ever growing range of value-added services and company growth. Because margins are so extremely thin, in order to sustain margins, distributors are buying other companies and then pulling together their disparate information systems. Open architecture is critical not only for enterprise interoperability and visibility, but also agility, to ensure the flexibility to change processes and connections as business requires.” Intentia has unveiled plans for Movex 3 that will provide a business process layer to connect with other service-oriented networks and applications.

“The big retailers are only getting stronger and more powerful, forcing the big wholesalers to be more agile in the services they offer,” Archer said. “To respond quickly with new services and track attendant costs, you must have a transparent view of your organization. In this new world of global distribution, how else can you manage all the tentacles – the supplier and customer initiatives along with your entire supply chain?”

Distribution on the Road
Route distribution has its own set of challenges—lately top among them the escalating cost of fuel and shortage of reliable drivers, increasing distributor ship overhead significantly. “A big pain point for distributors is a need to optimize driver performance and routing,” said Andrew Roszko, Cube Route’s director of operations. Cube Route is an on-demand fleet management solution provider that uses GPS to provide realtime driver movement and order tracking as well as route optimization software.

“One customer, Empire Distributors in Atlanta, is a liquor, wine, and beer distributor who runs 35 to 40 trucks a day. They pay drivers by salary and had trouble locating their drivers during the day without calling them on the radio. They’re using our hosted Web-based Visibility product on Nextel cell phones. We’re platform-independent, but the majority of folks have cell phones,” he noted.

Empire Distributors already had UPS’s RoadNet Routing system, so it doesn’t use Cube Route’s routing-on-the-fly time-sequencing module. Route and delivery time data is downloaded from RoadNet to the Cube Route system, which estimates drive time—taking set up and delivery times, distance, current traffic patterns as well as realtime performance data into account. At the beginning of the route, drivers click in odometer information on the Nextel phone and then follow menu-driven routing, eliminating the need for a trip sheet. The system uses the cell phone’s GPS to audit drivers on a central screen at the home office, giving the dispatcher has realtime delivery information, which is also accessible to sales and customers.

“ROI comes quickly, from eliminating clerical work, and asset, driver, and route optimization. Typically our customers see 10 times ROI within a year,” Roszko said.

Dyrc McLeod, director of operations for Empire Distributors, has seen the number of deliveries increase from 500 to 700 deliveries over the last four years. “All of our clients have tight time windows and they want multiple stops so they don’t have to carry inventory,” he explained. We had dispatch on the radio all day trying to locate drivers to find out if they were on schedule or not. We wanted GPS to locate the trucks, but also allows us to be proactive and manage our day in order to provide better customer service.”

McLeod explained they take Cube Route’s deliveries schedule and plug the data into RoadNet. “Fuel prices being what they are, the software lets us assess the profitability of a route and allocate and sequence deliveries far more efficiently to save on fuel costs. Over the last four years, business is growing and we’re able to operate with fewer trucks.”

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Deb Navas, editor at large for Supply Chain Manufacturing & Logistics magazine, has published over 200 articles internationally in consumer, business, and trade magazines. She has been writing about supply chain and data collection technologies for fifteen years.