Essentially, this is a method of moving goods through a supply chain by fully utilising transport during its downtime. In its most simplest form, it is the collection of goods from local suppliers using vehicles returning from store deliveries. Backhauling has been around for years and is now used by all the major UK food retailers as a way of reducing costs and aiding efficiency. In many ways it can be the first step towards factory gate pricing.

Okay, so what is factory gate pricing?
This is the next step beyond mere backhauling. Transportation costs have traditionally been included within the manufacturer's price. However, factory gate pricing aims to establish a price for completed goods that excludes any transportation costs. By establishing these charges the retailer is able to review transportation arrangements in the hope of maximising cost efficiencies. This should lead to the creation of a "we collect" supply chain model.

Sounds simple, why is it so controvesial?
There are many concerns expressed by suppliers. For one thing, such intitiatives should in theory provide the retailer with more transparency when it comes to product costing allowing comparisons to be made between manufacturers. On the face of it that does not sound too ominous. But suppliers remain suspicious of retailer motives ­ and are concerned as to how they will use such information.
Another concern is that that savings made in one area will inevitably add cost to another.
And there are still concerns that retailers are moving too quickly with factory gate pricing and will struggle to implement such a complex supply chain model.

Still confused?
IGD will be running a conference next February when all the major players will examine the practices and progress of factory gate pricing. E-mail for more information.