WELCOME to Customer Corner, a new section in Motortruck Fleet Executive. For Canadian transportation practices to rise to progressively higher standards, the shipper-carrier relationship needs to evolve from tactical to strategic and from arms length to integrated. A deeper understanding of the challenges driving your different customer sectors is critical in this regard. And that is the purpose of this new section: to provide you with in-depth information about what’s driving your current and potential customers along with reports on related legislative changes and statistical analysis of market trends. This issue we start with the food industry.

Canada’s food and consumer products industry, robust employer of over 350,000, generates shipments of about $85 billion annually but many pressures abound, including the need for integration and collaboration throughout the food chain from producer to consumer.

Grocers are turning to techniques such as profiling their SKUs as fast, medium or slow movers, and using that information to best select picking technology. Suppliers are seeking greater visibility into SKU level movement, and RFID technology has offered the promise of help at point of receipt to determine if a case should be put away or crossdocked. Food manufacturers, meanwhile, have to address channels with very different needs. (i.e. large chains requiring full cases, bar-coded with advance shipment notice and RFID, independents and clubs requiring full trailer loads, drug stores requiring broken case lots, etc.)

This means high logistics costs and low margins, so the move is on to shave excess inventory costs.

“I don’t think it’s any surprise that things are extremely competitive in Canada. We have a very concentrated trade and new channels have developed over the past five to seven years, and Wal-Mart’s coming into Canada has put considerable pressure on everyone’s performance so in terms of the whole efficiency area, there’s a lot of pressure for improvement. Suppliers are also facing increased labour costs, health benefit costs and input costs,” says Elaine Smith, vice president of industry affairs, with Food and Consumer Products of Canada, which represents food manufacturers and works collaboratively with retailers.

“All of those things are forcing efficiency. Our members are constantly measuring against standard operating procedures for metrics and case fill. Everything costs more to do in Canada because of size. You only really get the value out of it if it’s fully integrated throughout your whole supply chain,” she adds.

Standards set by ECCnet have opened up the doors in terms of retailers and manufacturers working together, she says, trying to drive costs out of the supply chain.

“ECCnet had to be done – having only 10% of the industry involved didn’t make it worthwhile for the retailers. In terms of improving in-stock positions, unique products etc. those types of things are going to be competitive advantages. Our members are working independently with retailers on their own collaborative issues. A mathematical formula just doesn’t do it on replenishment and forecasting,” says Smith, pointing to the need for a point of sale sharing of data.

Dan Nasato, systems sales manager, with FKI Logistex North America, says that challenges in food logistics lie in more frequent orders, smaller orders to the customer base, a proliferating amount of SKUs and different packaging of same item SKUs that need slotting on store shelves.

“They’re not shipping more weight but the order profiles are different,” he says.

As far as Wal-Mart and its RFID mandate for its top 100 suppliers are concerned, most of them have complied with it on a pallet basis.

“Most suppliers are going to a slap and ship arrangement on the pallet vs. having automation do that. People are still hedgy and waiting for the true benefit (of RFID),” he says. “I don’t think that they perceive the benefits outweighing the expense.”

Nasato notes that autodepalletization and semi-auto depalletization are becoming popular in food distribution.

“If you have a full pallet you know needs to be distributed to the order base, an AS/RS (automated storage and retrieval system) would bring out that full pallet, stage it in the location and it would be automatically depalletized and sorted to the various truck doors with no human intervention. With semi-automated you actually bring the pallet to a location and a picker does not have to walk hundreds of feet up and down a pick line. Some very high movers are being concentrated in the auto palletization area also, where the product comes into receiving and is dictated on a case level and goes immediately to a shipping sorter. There’s quite a bit of flexibility now happening with crossdocking,” he says.

Nasato sees more distribution centres performing alliances with manufacturers because delivery hours are decreasing and transport costs increasing. Some of the DCs and 3PL centres are leaving it up to the manufacturer to get direct loads to the consumer.

Another trend is that the time of order to delivery is decreasing to 3.5 days versus 7 in 2000.

“The chance of an order being cancelled or changed significantly is decreasing. The initiative is to get to less than 3 days’ delivery time in the next few years,” says Nasato. “People need to look at their network. It might mean that they have to have distribution centres in more locations, getting closer to shipping points. Those investments are significant. You need to then understand your point of sale info the closer you get to 20 days reserve inventory in your system.

One of the keys to timely road shipments is an extensive carrier selection process. For example, carriers hauling for food and personal care products giant Unilever Canada need to meet a stringent capabilities checklist and pass on-site inspection of their terminals and equipment. Transportation manager Ginnie Venslovaitis supplies short lists of would-be carriers with six or twelve months of company data, and asks them to assemble bids based on an accurate look at Unilever volumes, considering industry nuances from cube density to the additional charges associated with such things as grocery channel deliveries.

It’s a demanding process, but a select group of about 12 carriers has enjoyed the payoff of three-year contracts.

Longer contracts give carriers the confidence to invest in equipment, Venslovaitis, a recent Distribution Executive of the Year, explains. “They’ve got to know what volume they have for more than 12 months… we don’t want to put carriers out of business. It also allows us to look forward in our budgeting.”

Sounds like a recipe for more strategic, more integrated shipper-carrier relationships.

Managing Editor Julia Kuzeljevich has been writing about supply chain issues for five years. Her meticulously researched articles have garnered several Canadian Business Press Award nominations.