Why logistics & transportation are becoming make-or-break for retail businesses

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Any retailer who still considers logistics & transportation relatively marginal business costs, should think again: after store operations, they’re a retailer’s largest cost factor. But even more switched-on retailers may not be aware how three trends will make efficient, reliable logistics & transportation an increasingly decisive factor in the success or failure of their business.

With logistics & transportation today accounting for some 3.5—5.5% of most retail businesses costs and operating margins typically at most 4-8%, you don’t need a CFO to tell you that this is already a key area for any retail business. Nevertheless, most experts agree that three trends in particular are steadily pushing logistics & transportation further up the priority list of any retailer.

More, better, cheaper, now!

The first of these trends will be familiar to anyone who hasn’t spent the last few years stranded on a desert island: consumer behavior is changing. People expect more convenience (e.g. regarding where, when and how they shop), value for money (in an increasingly competitive marketplace) and choice (local produce, sustainable practices, bigger assortments, niche and exotic products, etc.). The second trend is the retailer’s response to that changing behavior: ambitious retailers are changing their strategies. Mostly to an omni-channel approach underpinned by a supply chain (SC) that’s as efficient as they can make it to optimize reliability. The third trend is a growing internal pressure within the business with logistics squeezed between  distribution center (DC) demands on the one hand and store demands on the other. With Replenishment wanting more frequent deliveries, made earlier; the Category Manager widening her assortment; Store Operations and E-commerce departments having to meet consumers’ quicker delivery expectations; pioneering online and social media marketing campaigns generating unexpected spikes in demand; and so on.

Tipping point

According to Gartner, “we are reaching a tipping point where the complexity of supply chains is defeating traditional SCP (Supply Chain Planning) tools in the battle to come up with an overall optimized plan. This will push leading companies to look to invest in planning capabilities and push vendors to put more of this category into their road maps.” Why? Because SCP optimization raises filling rates, reduces kilometers, keeps trucks on the road and facilitates smoother DC operations. Moreover, as former CIO at multi-national food retailers Delhaize, Luc Koenot, points out, “It’s clear a lean supply chain decreases operating costs and reduces the maximum capacity. Transportation efficiency brings store efficiency, and a better transportation execution increases customer service.”

Three-pronged attack

No surprise then that ORTEC has been working with some of the world’s leading retailers to help them optimize their transport & logistics. Essentially, such optimization innovations are achieved on three levels:

  • Tactical — by developing delivery schedules that balance the work in the DC while still meeting the demands and required inventories in stores. American retail giant WALMART, for example, has integrated routing and loading optimization, and can now split orders over multiple loads, significantly increasing its utilization;
  • Operational — by centralizing transportation schedules, and combining loading & routing and/or splitting orders to optimize utilization. Which is why South African retail and fast food chain SHOPRITE has moved to a central optimization platform for store delivery over multiple DCs;
  • Real-time — by using real-time information to create a virtuous circle of re-planning, updating and informing. Thus French multinational retailer CARREFOUR Poland has implemented a Transportation Control Tower that informs all stakeholders in advance of expected arrivals. So they can re-plan their part of the SC in time and the control tower can then re-optimize accordingly.

10% savings the tip of the iceberg

As a result, Walmart trucks now log 28 million fewer miles per year and use 4 million fewer gallons of diesel. Shoprite has reduced mileage by 1% while increasing volume by 22%. And Carrefour Poland has reduced operational costs by 7% and now needs only one instead of two planning teams. Across the board we typically see ORTEC make savings of around 10% in transportation costs. But perhaps more important even than this huge bottom line boost are the indirect benefits: having reliable, predictable working methods; getting the right products to the right stores at the right time; and all while meeting the various increasingly rigorous constraints at your DCs and stores.

Interesting?

Learn more learn more about how ORTEC can help you optimize your operations — either through our Suite of retail optimization solutions or consultancy support from a team with unparalleled retail sector experience and know-how — contact ORTEC or call: +31886783265.

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http://www.ortec.com

Goos Kant
Bio: Goos Kant (1967) is a full-time professor of Logistic Optimization at Tilburg University. He is involved in the master program of Business Analytics and Operations Research, as well as in the master program Data Science & Entrepreneurship. He is the project leader of a large R&D project on horizontal collaboration in logistics. Goos is also a managing partner at ORTEC, with global responsibility for all solutions in the logistics industry. His primary area of interest lies in the 3PL-industry in optimizing their planning processes in the end-to-end supply chain. Goos is involved in courses from MBA-schools TIAS and Nyenrode, and member of ORTEC’s supervisory board. He holds both an MSc and a PhD in Computer Science.

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