These retailers are focusing on exploiting the opportunities and cost savings presented by optimising transportation from factory gate to store. But what does it all mean for suppliers and are there any opportunities for them?
With the advent of centralised distribution in the 1970s and '80s, retailers took control of the secondary leg of the supply chain, from the distribution centre to the store. With a few exceptions, suppliers remained responsible for the primary leg from production through to the DCs, and the price the retailer paid for the product incorporated this transportation cost. Factory gate pricing is set to change this arrangement and suppliers are preparing to adapt to a new order.
Change is now inevitable, despite the fears and objections that have been raised, with early adopters like Sainsbury and Tesco having already asked their suppliers to separate the cost of distribution. Other retailers will have to follow suit if they don't want to lose competitive advantage. While suppliers are potentially losing control and visibility of deliveries into the retailers' DCs, it does mean they can now focus solely on their core competence production.
As it's a new initiative, factory gate pricing requires new business processes and a new set of tools. As recently as five years ago these tools were simply not available. But now the pervasiveness of the internet and the availability of web-based collaborative software has made this new business model a reality. These tools include applications such as G-Log's GC3, recently adopted by Tesco, which helps you choose the most cost efficient form of transport and provides real-time visibility across global trading environments.
But what exactly do these tools do? GC3 helps organisations handling complex supply chains, including retailers such as Tesco, logistics providers like Exel, and manufacturers and suppliers. It represents the latest generation in transportation management systems and is designed to be run over the internet so information can be shared among everyone involved via a standard web browser.
Tesco is using GC3 to manage its logistics planning, control and monitoring processes, allowing it to link with trading partners and logistics providers.
Phase one of the four-step project went live after only six weeks. This phase takes orders from the order management system and converts them into shipments. It then allows Tesco to book transport automatically with carriers, and to achieve real-time visibility of shipments via both electronic messages from the warehouse system and manual updates over the web. Once shipments are completed, the system allows invoices from carriers to be matched with what physically happened to make sure the right payments are made.
The GC3 system can also select the best transport provider based on cost and service requirements. Underlying GC3 is Supply Chain Event Management (SCEM) which allows the system to automatically notify relevant parties and identify actions that need to be taken as events unfold whether these events occur on time, late, or not at all. Unlike traditional transportation management systems which are designed around a distinct industry, geography or mode of transport, GC3 manages all types of freight, across all modes and geographies, within a single integrated application.
If a retailer truly aims to optimise transport from factory gate to DC, or even across the entire operation, then using their own fleet may not always be the best solution. Retailers should also consider the big logistics providers, the small independent carriers and, indeed, the supplier's own fleet. This provides an opportunity for like-minded suppliers to collaborate and compete to provide this service consolidation of shipments from multiple suppliers into full truck-loads for delivery into one or more DCs.
We're already seeing the larger logistics providers offering multi-supplier consolidation centres in response to factory gate pricing, but suppliers themselves often have the physical infrastructure, the transport fleets and the expertise to compete on equal, if not better, terms.
What has been missing up until now is the incentive to make it happen and the software tools to provide the control.
The result of using web-native systems such as GC3 should be easy access to supply chain visibility for everyone involved, through which suppliers, customers and logistics service providers can work together to make better informed decisions more quickly. This undoubtedly poses several challenges, although the potential upside is that all parties can benefit, leading to greater levels of collaboration and performance across the entire retail supply chain.
Dominic Regan is sales director at software provider G-Log n
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