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Frozen food distribution costs drop; credit computerization as big factor.

Frozen Food Distribution Costs Drop; Credit Computerization as Big Factor

It costs less to distribute frozen food in the United States now than it did 10 years ago, and increasing computerization of operations has a lot to do with it.

Distribution costs as a percentage of sales revenue declined from nine percent in 1980 to 7.2% in 1990, according to Herbert W. Davis, a logistics consultant with his own firm. Distribution cost per hundredweight fell from $17 to $8.

Speaking at the Physical Distribution session of the Western Frozen Food Convention in March, Davis said that there are several factors involved, including the increase in product value by 18%, but the main ones are reduction in transportation and warehousing costs by 38% and 21%, respectively.

Increased automation has streamlined procedures. The order cycle now averages 5.9 days with electronic data interchange (EDI), vs. 9.3 days in 1980, where there was "still significant order entry by mail." Availability of product when ordered in the amounts needed has also increases significantly, Davis said.

There has been a lot of reorganization of FF distribution, but not always in the same direction. Some frozen food companies have gone to more warehouses and some to fewer, for example, although the average number of shipping points is down from 17 to 14. Two thirds of the top dozen companies have reorganized in the past decade, 72% to a more centralized system, 28% to less centralized.

Where the number of distribution points has increased, it has generally been to accommodate copackers, Davis reported. Some firms have added more full-line warehouses, even though the total number of warehouses is down. There is also a trend towards customer-specific warehouses and customer pick-up - both of which had been considered old-fashioned a decade ago, but which are now more efficient in some cases.

Value-added services - integration with carriers, carrier feedback, dock appointment feedback, better status information - are more and more important to warehousing operations. Not only EDI with manufacturers and customers, but radio communication with trucks are enabling warehouses to keep better track of products. EDI is so intrenched with one client company, Davis explained, that the 300-person customer service department "deals only with problems, knowing nothing of the normal flow of orders."

Warehouses have gone from being storage points to information centers, he said, and warehouse configurations are changing and becoming more varied - "There's no more, |One size fits all.'" With better control over inventory, inventories don't have to be as large. The whole industry has moved from the mechanical to the computer era, and advances in computer software are now more important than advances in the mechanical handling of products.

Richard Siegel, chairman and SEO of Sysco Food Services in Los Angeles, told the same session that a new inventory management system implemented in the 1970s, with enhancements in the 1980s, had enabled his company to increase inventory turns and customer service substantially. Sysco can now replenish 60 distribution facilities with the right items at the right times, pick up loads itself where it makes sense, and use computers to not only create the most efficient delivery route, but time deliveries to customers' preferred "delivery windows."

Sysco warehouses can now forecast future usage by computer, and Sysco salesmen go around with lap-top computers that can call up data on accounts receivable, special instructions, etc. Tied in with the mainframe computer through a modem, the lap-tops can review orders for the past 120 days. They can also create hard-copy printouts of orders on the spot, so that customers don't have to wait until the salesman gets back home to send one out.

Gary Smith, vice president of grocery and Safeway brands marketing for Safeway Stores, Oakland, Calif., has a computer system that can monitor each category and each vendor on performance. It can call up data on quantities ordered, quantities received, orders canceled, orders received late (and how late), and why each shipment was ordered (regular, promotional, advance buy), and even how much excess goods were needed to fill truckloads.

The electronic language to communicate such information is being constantly refined, delegates to the International Association of Refrigerated Warehouses convention in May found out a session of WINS (Warehouse Information Network Standards) and EDI.

Rod Snodgrass, director of information systems for Continental Freezers, cited such codes as 943 (stock transfer shipment advice) and 944 (stock shipment advice). William Hall, EDI project manager for Pillsbury, added such "reason codes" (reasons for non-delivery) as 0-1 (temporarily out of stock), 0-3 (severe weather) and 0-12 (overload of work at the plant).

Snodgrass also reported that the WINS Council is trying to merge its system with the more generic X-12 system. Chuck Kosy, manager of information technologies for Kraft General Foods, added that there does seem to be limits to the usefulness of EDI - his firm tried to use it for shipping advices on raw materials delivered in bulk totes, and discovered it didn't really make service faster or better.
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Publication:Quick Frozen Foods International
Date:Jul 1, 1991
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