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Is there a new channel in your profit picture?

When asked why she was performing her daily chores in a certain way, a young store employee shrugged her shoulders and said, "I don't know--that's the way we've always done it!"

The young lady is not alone in her thinking. Even when we make improvements, we are often modifying "the way we've always done it," instead of focusing on our real objective. We can relate this scenario to nearly all businesses, including dairy foods. Here's an example of an industry that's become extremely proficient at doing the same thing it's been doing since the turn of the century.

We've increased production per animal from 2,500 lbs. in the early 1900's to 5,700 lbs. in the 1950's to more than 14,600 lbs. today.

We've seen improvements in the form of better tasting, higher quality frozen, refrigerated and chilled products ... many with extended shelf life.

In retailing, we have the advent of hyper stores, offering customers everyday low prices on more than 30,000 SKU's in sprawling 60,000 sq. ft. emporiums, brimming with eye-catching products from all over the world.

At both ends of the product cycle --production and retailing--we are nearing maximum efficiency, yet the distribution channel, the critical link that brings the two ends closer together, has remained fundamentally unchanged. As a result, the dairy industry finds itself trying to push the huge volume of products produced by an extremely efficient processing system through a very inefficient distribution channel--"the way we've always done it."

But greater production, coupled with a relatively flat demand, is taking its toll. According to a recent study by Dairy Field, the number of dairy plants has decreased by 43% in the last decade, from approximately 3,200 down to a little more than 1,800. If this trend continues, the number of plants will be less than 900 by the year 2000.

Faced with the challenge of finding new, innovative ways to manage their logistics, inventive dairy distribution professionals are eschewing the "that's the way we've always done it" mind set and developing alternatives to traditional distribution. They are "flattening" the channel, eliminating the once revered methods of distribution that are now too costly for even the most profitable product line. A few examples:

Dean Foods Rapid Replenishment Program

Now in its fifth year, the Dean Foods --TLC partnership illustrates how a fresh approach to logistics can improve operations--and margins--of both the retailer and the manufacturer. This "improvement" was achieved not by vendor concessions in exchange for higher volume as might be expected, but by all three parties working together to achieve a common goal--getting the best product to the ultimate consumer in the most efficient manner.

The Rapid Replenishment Program begins each morning when dairy department managers from 63 retail stores enter orders into their PC terminals. After the cut-off time of 11:30 am, all orders are electronically pooled in the retailer's corporate mainframe. At 1:30 pm, data is automatically sent via EDI to Dean Foods corporate office in Franklin Park, Illinois, reviewed for any discrepancies, and forwarded to the TLC distribution center in Kalamazoo, Michigan by 3:00 pm the same day. This same order is also sent to the Dean production facility in Belvedere, Illinois. At TLC, the orders are then picked and staged for shipping.

Unlike Quick Response which, in its true form is inflexible, the Dean Foods Rapid Replenishment Program allows dairy managers to call in any last minute additions up until the time the truck is loaded. TLC maintains a dedicated toll-free customer service line specifically for telephone orders, and all calls are answered "Dean Foods."

TLC then delivers the orders at scheduled appointments with dedicated equipment and drivers dressed in distinctive Dean Foods' logo and corporate graphics. Meanwhile, additional refrigerated equipment picks up replenishment stock at the Dean Foods product facilities--stock produced from the retailer's electronic order information. Actual "static" inventory time is minimal.

Dean Foods realizes the economies of large-scale production while providing the high level of service normally limited to smaller, regional dairies. What's even more remarkable is that Dean Foods provides the DSD for all the items in the case--167 different SKU's--many of which are Dean competitors. Competitive products are purchased by Dean at customer's request and co-mingled at the TLC Distribution Center. This helps the retailer reduce operating expense by reducing the number of shipments --and invoices--to one instead of 10 to 12.

Higher visibility without capital expenditures, increased sell through, lower operating ratios and reduced inventory are all pluses for Dean Foods, an innovative thinker able to profit in a market hundreds of miles away. And the retailer has a point-of-sale replenishment system similar to Quick Response with a streamlined product mix delivered directly to the store instead of through its own distribution center.

Work Place Grocery Delivery

The question is no longer "if" Ms. Harried Consumer will ever be able to shop at her place of employment. The question is "who" among you will be the first retailer in your market to flatten the channel to the point of eliminating the conventional grocery outlet. I'm not referring to an errand service. I mean a 6,000 plus SKU electronic "store" where an employee orders groceries through human resources, picks them up at the end of the day in the parking lot, and has the cost deducted from her payroll. If you're skeptical, consider this:

* As QR and other DSD replenishment programs call for smaller and smaller orders delivered more frequently, the amount of labor required to pick an individual store order versus an individual person's order is becoming very similar.

* The cost of building and operating a warehouse, where product can be stacked for efficiency instead of for display, is a fraction of what a hyper store costs, far offsetting the expense of individual order delivery to a central location, such as a place of employment.

* The information technology is--in most cases--already in place. To bring a distribution center and a corporate MIS department on line is not a major task by any means. A growing number of consumers have become comfortable with electronic mail, Compu-Serve, and other on-line services. If you can buy airline tickets and common stock on your personal computer, why not milk and green beans?

* Work place delivery gives a grocer the opportunity to capture additional market share by serving a different group of consumers where they work, instead of where they live.

* According to the human resources department of a prominent Ohio hospital, work place grocery delivery has grown tremendously since implemented two years ago. And "It's the cheapest benefit we have."

TLC is currently developing a similar program with a major retailer in the Midwest that will give our client market share in a 40 mile radius outside of its conventional market. This logistic partnership evolved not by improving upon a status quo business plan, but by starting fresh with a clean piece of paper.

Why not take a fresh look at you r logistic program and see if there isn't a link or two that fall under the "that's the way we've always done it" category? If so, change the channel.
COPYRIGHT 1992 Frozen Food Digest, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Klingenberg, Keith
Publication:Frozen Food Digest
Date:Jul 1, 1992
Words:1193
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