Reprinted from TRAFFIC WORLD, May 15, 2006
Remixing the Inbound Channel
Shippers are always on the lookout for ways to speed product from source through supply chains to the consumer, and Wal-Mart’s “Remix” distribution strategy is going to give its vendors a new way to reach the goal whether they’re ready for it or not.
“This is a huge opportunity for retailers to become dramatically more efficient. If they just ignore it, I think they’re missing out,” said Dan Sanker, president and CEO of logistics outsourcer and Wal-Mart partner CaseStack.
Remix is Wal-Mart’s name for a vendor transportation consolidation program on a colossal scale, the sort of scale that only the world’s largest single retailer can create with a strategy that will echo across the country’s logistics pipelines.
Between now and 2007, Wal-Mart plans to transform its distribution system of 120 company warehouses fed by thousands of vendors moving 2 billion cases of food and 2.7 billion packages of other merchandise to 3,700 U.S. stores annually. The Bentonville, Ark.-based chain is forging a two-track inbound logistics system that will separate high-turnover goods from slower-selling products to reduce stock-outs, especially in its fast-growing grocery stores.
To do that, Wal-Mart is leaning on its vendors to work with transportation and logistics providers to consolidate less-than-truckload deliveries into truckload freight before it reaches a store. If successful, the system will change the way vendors and supply chain partners move goods to Wal-Mart, and because of the company’s size and reach, set an example other high-volume competitors will be hard-pressed not to follow.
It will also sharply expand Wal-Mart’s distribution channels through certain gateways in ways that will ripple across strategies for handling and moving imported goods well beyond Wal-Mart’s own operations.
Behind the strategy at Wal-Mart and myriad other shippers increasingly tied to global supply chains is the need to get a better grip on distribution and delivery of goods that are dropped onto U.S. shores, says Symbol Technologies’ Senior Director for Industry Solutions Gerald McNerney.
To do that, he says, shippers are trying to more closely manage their transportation relationships.
The largest shippers have the expertise, resources and technology to move beyond a simple role as a buyer of goods. They want to dictate not only when shipments are delivered, but how and where, whether to a third-party warehouse or the company’s own, or direct to the store.
“Forward-looking retailers are going in this direction,” McNerney said. “They know they must have much tighter control over their environment so they can cut costs from that environment.”
For Wal-Mart, the Remix strategy also means a realignment of supply chain relationships.
The shipper asserts more control in this case by encouraging vendors to coordinate their LTL shipping schedules with logistics providers and carriers so they arrive as full truckloads at stores. Inventory management becomes more the responsibility of the vendor and logistics provider. Investments may have to be made in technology to support a much more complex loading of trucks and other transport modes. Many of these costs will be borne by the vendor or third-party provider.
“I’ve heard the argument,” said Tyler Ellison, vice president, global client group for Schneider National. “But what I would contend is that Wal-Mart’s Remix initiative at the end of the day eliminates waste and cost from the supply chain. ... Even if we have to add costs in some areas, the cost of being out of stock is higher.”
Wal-Mart declined repeated requests for an interview on this story. Vendors are reluctant to talk about their big customer.
However, logistics providers and technology vendors—who may profit from increased demand for their services from both Wal-Mart and its suppliers—say Remix offers a new distribution paradigm from which many other companies can benefit.
Jeff Conover, vice president, supply chain at DSC Logistics, said, “Wal-Mart is an industry leader, so when they do something, everyone takes notice.”
At its heart, Remix is about avoiding stock-outs of popular, fast-moving items, from paper towels and toothpaste to laundry detergent and fresh food.
Stock-outs became an issue for Wal-Mart after the mass merchandiser ramped up its in-store grocery units in the 1990s. At the same time, Wal-Mart turned from its focus on American-made goods to becoming a huge importer, particularly from Asia, lowering the cost of the goods but adding complexity and cost to a supply chain now built on inbound logistics.
The initiative aims to free distribution workers from the need to sort manually on receiving docks the higher-velocity items from slower-moving goods, thus slowing replenishment of both.
Wal-Mart wanted more and smaller deliveries faster, something of a challenge when goods are coming from overseas in bulk.
That would mean vendors sending more LTL shipments, which would push up their transportation costs. Instead, Wal-Mart suggested vendors partner with carriers and logistics providers to have their LTL freight consolidated into truckloads at third-party distribution centers. Systems were also encouraged to pack freight for optimal unloading and distribution at stores to reduce overlapping or redundant delivery stops.
Wal-Mart was moving toward transportation consolidation before Remix, Sanker said, though the company’s outreach increased once it decided to take the strategy nationwide after a successful rollout in Florida in 2005.
“Wal-Mart has spent a lot of effort to make it possible for all manufacturers to participate in Remix without any problems,” he said. “They’re suggesting consolidation programs because it helps vendors ship to Wal-Mart with lower costs than if they didn’t consolidate.”
The company offers its online Retail Link software for vendors to enter and review purchase orders, make carrier appointments and get data on consolidated loads. It compiles vendor scorecards to assess on-time performance and other metrics.
Remix relies heavily on technology. CaseStack has what Sanker called a consolidation engine installed into a combined transportation and warehouse management system to make truckloads easier to pack, and a transportation optimizer that reviews roughly 1,000 carriers for the best routes and price.
“You have to be able to move really fast in a consolidation program,” Sanker said. “Instead of two pallets of three products, you might have five cases, two pallets, six boxes, which means a lot more picking. The system has to be able to kick out the right information and instructions to everyone in the warehouse. ... If you tried to do it manually, you’d be buried.”
“All of this comes back to data,” said McNerney.
The system also requires a new level of precision for on-time deliveries. Conover said, “The stress on the supply chain to be perfect is pretty overwhelming with Wal-Mart right now.”
Late or missed deliveries are intolerable in an environment without safety stock. As a result, he said, “We’re always one day away from a Wal-Mart distribution center. … The probability of a service failure is reduced dramatically the fewer miles you have to drive.”
Wal-Mart told reporters during an April tour of a Bentonville warehouse that its radio frequency identification inventory tracking program was proceeding as planned, but logistics providers say most of the shipments still are barcoded.
To support Remix, more logistics providers and carriers are turning to barcode-enabled mobile computers to update inventory databases on the fly. Accurate, near-real time data from vendors and warehouses feeds higher-level systems Wal-Mart needs to fine-tune its new distribution system.
“Once you know what you’re selling and how fast,” McNerney said, “you can work on your demand forecast.”
“The strain on the supply chain is pretty immense,” Conover said. “When (Remix) works well, it works well. The challenge is when there’s a glitch. We haven’t had one so far; on-time performance has been well above Wal-Mart’s expectations.” Conover said he tours local Wal-Mart stores, looking at where his vendor-clients’ products should be. “If you want to see it in action, go to a Wal-Mart,” he said. “The truth, the judgment, is on the shelves.”
For those who send the products to the shelves, the judgment is more complicated.
Although he wouldn’t name names, Conover said vendor reaction to the new program breaks down into roughly two camps. “There’s a concern because vendors see the increase in supply chain costs. Their view is that they have to bear the expense of it,” he said. “The other camp also looks at the increased costs to their supply chain, but recognizes if they do it right they will see their sales increase,” and they may enjoy an advantage over non-participating competitors.
“It depends on whether you’re a glass-half-full or half-empty person,” he said.
As results accumulate, the ripple effects of Remix will spread from gateways to points deeper in supply channels, observers said.
“As Wal-Mart pushes back inventory, that’s going to force vendors to relocate distribution centers and such closer to the retailers own distribution facilities and stores,” said Barry Hibbard, vice president of real estate at Tejon Ranch, a 426-square-mile multi-use development in Southern California’s Inland Empire. Those relocations will in turn have ripple effects on the distribution networks of vendors to other retailers.
Ellison said it’ll all be worth it.
“Wal-Mart’s focus on the end customer is what makes them great,” he said. Reducing the biggest merchandiser’s cash-to-cash cycle, as Remix is expected to do, will benefit not only the retailer but eventually its partners, as new efficiencies help each move other clients’ freight on the same swift schedules. Keeping Wal-Mart’s shelves stocked keeps customers, but also focuses the company’s supply chain partners in ways that benefit their other clients.
“Our focus has to be not on Wal-Mart,” Ellison said, “but on Wal-Mart’s customer.”
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