Edition 54
Retailers’ Supply Chains Can Thrive with a Product Lifecycle Logistics Approach

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Increasingly, vendors don’t want store returns back and are crafting agreements that put the burden on retailers. This trend is changing the way retailers manage the reverse logistics of their supply chains.

Many of the persistent issues facing retailers today—juggling multiple channels, managing seasonal demand, running lean without running out—drive the search for solutions that will improve efficiency and reduce operational costs. An increased focus on sustainability has shifted disposition strategies to get the maximum use of, and extract maximum value from, every product.

To achieve this goal, smart retailers are looking up and down their supply chains to root out waste and find new approaches to manage their logistics more effectively and in a more environmentally friendly way.

Examining each step in the supply chain without looking across functional groups—without breaking through operational “silos”—costs retailers precious opportunities to identify supply chain savings.

Product Lifecycle Logistics is a game-changing approach that treats the movement of product as one continuous inventory stream designed to reduce supply chain costs an average of 10% to 20%.

Product Lifecycle Logistics and the Retail Supply Chain

In the retail supply chain, managing product lifecycle costs comes down to one word: inventory. Too little, and you lose sales; too much, and you create a chain reaction of added costs that cripple profitability.

But, for retailers, where does the product lifecycle start?

It starts upstream at the vendor’s production line. Like intersecting gears, the demand and supply engines must behave as separate but synchronized parts of a larger whole. This synchronization is elusive in the retail supply chain, as poor data sharing among retailers, vendors, and logistics partners can cause gears to grind and wear out.

Retailers have built organizations to manage this complexity, but these elaborate corporate structures can actually contribute to the problem. Too often, the various steps in the supply chain—forecasting, purchasing and vendor management, merchandising and promotion, warehousing and inventory control, transportation, returns processing, and liquidation—are managed in isolation, without communication among functional groups. Efforts to streamline individual logistics functions can reduce costs in a particular area, but bigger opportunities to gain efficiencies across the entire supply chain are left untapped.

A retailer’s move into online sales to expand its market becomes costly because the online launch, run by a newly formed, autonomous department, ends up creating dual logistics infrastructures, leading to cost overruns in warehousing and transportation.

Even worse, a strategic move to cut costs in one functional silo can actually increase overall costs by creating inefficiencies elsewhere.

A national department store’s purchasing department negotiates a great price on women’s apparel for a spring promotion. But the vendor can’t provide specific delivery information, so receiving and distribution all take longer to process than planned.

The resulting increases in distribution center staffing and expedited freight add costs that make the promotion unprofitable.

Product Lifecycle Logistics is a more intelligent, comprehensive approach for planning, conducting, and evaluating supply chain operations. By managing all logistics needs seamlessly, in which strategy is developed with an understanding of the interrelationships among individual functions, retailers achieve maximum efficiencies and sustain them over time.

Seamless Logistics
Clearer Vision, Leaner Thinking

The central concept behind Product Lifecycle Logistics is that the movement of product is not a series of independent functions, but rather a continuous flow that, at any point, has a potential savings impact throughout the lifecycle.

The greatest benefit of this approach is increased analytical power: Product Lifecycle Logistics supplies actionable information that clears the fog away from the central issues that drive up costs, exposing unused ways to eliminate waste and reduce costs across the entire supply chain.

Inbound Logistics
Aligning Purchasing and Logistics to Reduce Inventory and Inbound Freight Costs

Disconnects abound between a retailer’s purchasing and logistics functions, but well-coordinated efforts can yield big-dollar savings in managing inbound supplier inventory.

The challenge:
The purchasing group of a midsize retailer allowed its suppliers to manage delivery to the company’s distribution centers. Store deliveries were handled by a private fleet without the benefit of a transportation management system; this led to inefficient routing and significant “deadhead” miles from delivery points back to the DC.

The fix:
A 3PL, brought in to identify freight savings, immediately engaged with the purchasing group to gain control of all inbound freight. Today, the retailer’s fleet picks up a large portion of supplier freight while returning from store deliveries, taking the load ratio from 60% to 90% and offsetting fleet costs 30%. In addition, 3PL management of store deliveries improved routing efficiency, providing a total inbound and outbound freight savings of $2.5 million.

Fractured communication within a retailer’s supply chain organization can drive up inbound freight costs even when the retailer controls the freight.

The challenge:
A small supermarket chain in the upper Midwest sourced much of its produce from the West Coast. But last-minute sharing of forecasts from the buying group forced the transportation team to purchase carrier capacity for these deliveries at “market rates” instead of lower contracted rates based on predicted demand.

The fix:
A 3PL enabled faster sharing of forecast data between the retailer’s logistics team and its carrier partners. This allowed carriers to confidently book drivers for Midwest to West Coast runs knowing they would have a load of produce for the retailer on the backhaul. This advanced knowledge reduced the annual cost of long-haul runs by $750,000.

As these examples show, the root of the problem was less about supply chain complexity and more about structural silos.

The solution didn’t require a change in strategy, just better communication and an awareness of how actions in one functional area affect overall efficiency.

Outbound Distribution
Cutting Costs While Keeping Shelves Stocked

Retail distribution is about keeping shelves full at the least possible cost. By combining the efforts of formerly segmented supply chain functions, retailers experience on-shelf availability and greater efficiency.

Solving the Multichannel Distribution Challenge

Today, most large retailers operate both brick-and-mortar and online stores. Often the two channels are managed independently, leading to redundant distribution facilities and systems and even separate agreements with the same vendors, undermining purchasing leverage.

But retailers that combine multichannel distribution requirements are keeping costs under control.

The challenge:
A national retailer with thousands of SKUs created an inventory issue when it expanded into online sales. It opened up a separate distribution center and negotiated separate purchasing agreements with vendors that provided inventory for both its store and online channels.

The fix:
The retailer’s 3PL delivered a solution that combined fulfillment operations using “each” picking into a section of the primary distribution center, reducing inventory, inbound transportation costs, and management overhead for an overall cost savings of $850,000 annually.

Reverse Logistics
Using Data from Reverse Logistics Operations to Inform Upstream Decisions

The biggest profit upside for retailers is getting it right the first time—stocking and shipping just the right amount of inventory and avoiding returns. Downstream data collection in the reverse logistics operation can help retailers continually fine-tune these upstream decisions, but this intelligence is not routinely shared. When it is, the results can be impressive.
Courtesy of GENCO, Supply Chain & Reverse Logistics Leader

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