Factory gate pricing will save large retailers money because they can buy transport more cheaply than some suppliers. But it is still not clear whether it will make the whole supply chain more efficient, according to a report from Insight Research.

The study, based on interviews with supply chain directors at the multiples, third party logistics companies and suppliers, says factory gate pricing now accounts for more than 40% of Tesco’s primary distribution and a small but growing percentage of Asda’s.

However, retailers were some way off integrating their primary and secondary fleets, and were in many cases paying the same haulier to do the same trip, instead of the supplier - albeit at a cheaper rate. Likewise, with most availability problems occurring in the last 50 yards of the supply chain, it was not clear how putting retailers in charge of primary distribution would generate dramatic improvements in availability, said the report.

However, if Tesco controlled all the trucks coming into its depots, it would have greater flexibility over scheduling. On a practical level, adds the report, negotiations were still hampered by the inability of some suppliers to demonstrate precisely how much it cost to serve individual accounts.

The factory gate price varied, but most suppliers interviewed said the factory gate price was 3-4% less than their delivered price.
Elaine Watson