-By Joseph Tarnowski and Michelle Moran

Consumer packaged goods (CPG) companies are seeing improved performance and increased efficiencies, and retailers should expect this to continue, according to a study by the Grocery Manufacturers Association (GMA).

According to the "The 2010 Logistics Benchmark Report," conducted by IBM's Institute for Business Value on behalf of GMA's Logistics Committee and published this past April, CPG companies' logistics costs are down, on-time delivery percentages are up, and they are getting a better hold on inventory management.

The study revealed that logistics costs as a percentage of sales have decreased from 2005 and 2008 levels, when they held steady at 6.9 percent, to 6.75 percent in 2009. These overall cost reductions are more impressive in the context of rising freight costs, which were up 11 percent from 2008 levels.

Surprisingly, given the overall decrease in logistics costs, freight costs continue to climb — up 11 percent from 2008. However, outsourcing, intermodal transportation and IT investments in warehouse management systems (WMS), transportation management systems (TMS) and other technologies are helping to offset these costs.

Top Priorities

Reduced logistics costs, increased customer responsiveness, and profitable growth still rank as the top three objectives for supply chain executives, just as they did in 2005 and 2008. However, in the midst of a global economic downturn, much more emphasis is being placed on taking inventory out of the pipeline to improve working capital efficiencies. The respondents in the GMA study were also positive about the impact of their various supply chain initiatives in the past two years: to decrease costs (62 percent), improve efficiency (58 percent) and raise customer service levels (44 percent).

"In the face of a global recession, food, beverage and consumer product makers are reporting overall supply chain performance improvements in all categories of cost, service and time," said study author Karen Butner, supply chain management global leader at the Armonk, N.Y.-based IBM Institute for Business Value. "These improvements are the result of a vigilant focus on customers and containing costs."

On the customer side, respondents say on-time delivery performance has reached paramount levels and exceeded targets, case fill rates are up, and even perfect order levels are higher. On-time deliveries to warehouse schedules have improved more than two percentage points from 2008 — surpassing the industry goal of 95.2 percent. The top performers (those in the top 20th percentile) achieved 98.6 percent in on-time delivery to scheduled promise time within 30 minutes. Even more impressive: on-time delivery to the customer's requested date and time was up almost eight percentage points from 2008.

Despite these marked improvements in customer service levels, customers are still not satisfied. According to customer satisfaction statistics, satisfaction is down over 13 percent —from 92 percent in 2008 to 88.7 percent today.

One reason this may be happening, the report suggests, is that suppliers aren't differentiating services by their various customer segments, and when they do differentiate, it is predominately based upon sales volume and growth potential, with little to no differentiation based upon account profitability.

Fortunately, respondents' goals continue to be set higher for 2012 for most of the major customer service metrics.

Improved Inventory Management

Agile inventory-management controls and attention to demand variability were at an all-time high during the recent economic recession, according to the study findings. Days of supply are at 36.4 on average, down from 45.
 
Inventory turns have shown a strong improvement over the past two years, jumping from 8.1 in 2008 to 10 turns in this year's study. Make-to-stock remains the predominant strategy for inventory management; however, there has been growth in vendor-managed inventory (VMI), and continuous replenishment programs that are linked to actual consumption or point-of-sale (POS) data.

The study revealed four key focus areas to which supply chain leaders should direct their attention to optimize supply chain performance, productivity and responsiveness:

A Demand-driven Supply Network: Accurately predict demand and be in a position to react to demand variability through dynamic sourcing and allocation of all needed resources. The integration of customers' wants and needs must permeate the supply chain — from inception to delivery — with the entire global network focused on the end shopper/consumer

Enhanced Visibility: Move beyond real-time communication to open collaboration — allowing people across the supply network to connect and communicate faster, share decision-making, and work transparently in a virtual, secure, globally integrated environment that enhances visibility to events, suppliers, service providers, customers and other key connections

Sustainability: The best results in terms of cost and efficiency can be achieved by balancing the mix of cost and service globally, while sustaining the health of the company and the planet

Risk Management: Risk management policies and programs are inclusive, and should be adjusted in situations where there is a probability of an event occurring. Mitigation strategies should be in place and known by all to help ensure immediate response

"'The 2010 Logistics Benchmark Report' confirms that a key to continued improvement for companies will be more accurately predicting customer demand and reacting to demand variability," notes Bruce Hancock, director, supply chain management at the Hershey Co. in Pennsylvania and chairman of the GMA logistics committee.


Green Hills' Real-time Inventory Monitoring

The Center for Advanced Retail Technology at community-based independent Green Hills last month formed a strategic agreement with RockTenn Merchandising Displays to showcase RockTenn's ShopperGauge in-store monitoring system that provides real-time reporting of shelf activity.

ShopperGauge incorporates BVI Networks' RetailNEXT video analytics system with RockTenn's inventory management and in-store merchandising capabilities to deliver real-time shopper insights.

"By linking RockTenn's on-shelf electronic pusher system with BVI Networks' video capabilities, the ShopperGauge system provides retailers what is really necessary for measuring and managing what's happening in the store," says Gary Hawkins, CEO of Syracuse, N.Y.-based Green Hills, as well as retail technology consultancy Hawkins Strategic, LLC. "This partnership is a great example of how new technologies are being connected together to form the new ecosystem that Hawkins Strategic is calling 'Retail 3.0.'"

The ShopperGauge system was developed to help retailers and CPG manufacturers understand shopper behavior in real time. Its software interface allows retailers to configure out-of-stock alerts, signal potential shoplifting activity and manage on-shelf availability. In addition, the system provides storewide insights into shopper engagement and conversion to help determine which marketing messages sell best, ranks display and promotion effectiveness, and identifies the highest ROI locations.

The Center for Advanced Retail Technology at Green Hills was created to enhance industry learning through retailer visits with hands-on, behind-the-scenes views into new and forthcoming technologies and discussion focused on changing business practices. A live retail operation, CART supports extensive data collection across products and shoppers, providing retailers quantitative views into featured technologies' impact. CART is a service of Hawkins Strategic, which has offices in Skaneateles, N.Y., and West Hollywood, Calif.


Smart & Final Wins at the Slots

Smart & Final Stores, LLC and supply chain optimization software innovator and provider Optricity highlighted the benefits the grocer experienced from the deployment of Optricity's slotting technology at the recently wrapped annual Warehousing Education and Resource Council (WERC) Conference in Anaheim, Calif.

Called OptiSlot DC, the software uses combinatorial mathematics to produce purely deterministic optimal slotting solutions for dynamic warehousing environments. Using the system, Smart & Final completed a reslot that improved productivity in a distribution center, yielded significant labor savings at stores and boosted associate morale.

"We evaluated a number of options, but we particularly liked the OptiSlot features related to slot move execution, and ability to labor plan and control workload," says Tom Paolucci, director of distribution for Los Angeles-based Smart & Final.

The Smart & Final DC reslot was completed in one weekend with no significant impact to customers. Labor savings for product slotted in the DC by store aisle/section showed a 15- to 20-minute savings in store processing per load, which equated to an annual savings of $300,000 for stores, according to the retailer. Further, the effort has since netted a 2 percent to 3 percent improvement in DC selecting productivity, which equates to over $100,000 per year in labor savings.

Smart & Final also worked with Research Triangle Park, N.C.-based Optricity to reconfigure the placement and direction of case-flow racks and pick-path sequence to reduce over 10 percent of the total travel from the pick path. Tangentially, working with OptiSlot allowed for the creation of a separate pick path for caustic items, thereby isolating them from edibles.

Although Smart & Final's original objective was simply DC optimization, OptiSlot's capabilities eventually led the retailer to expand its goals to include reducing store labor by grouping product in the DC; improving store efficiency without negatively affecting the DC; improving slotting in relation to safety, ergonomic and associate concerns; and developing an ongoing slotting maintenance program, all of which were satisfied by the completion of the project.

Smart & Final operates some 300 non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho and northern Mexico.


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"The 2010 Logistics Benchmark Report" is based on the responses of 26 senior logistics
executives from GMA member companies to a 50-question survey. The average annual revenue of responding companies was $5.8 billion. The full report is available online at www.gmaonline.org/publications.