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CONTENTS
• New Chicago Facility
• Letter From President
• Logistics Services Trends
• 2006 Industry Issues
• Velocities Map (PDF)
• Front Page
• Visit the Hanson Website
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Trend Toward Total Logistics Services May Leave Traditional Warehouse Operators Out in the Cold
Tony Siedeman
Reprinted in part from the IARW Cold Facts; Jan/Feb 2007
With advanced supply chain systems now commonplace, manufacturers and retailers can have more visibility and control over their product flow than ever before. Information that once was gathered only during occasional inventory sessions is now available at a moment’s notice.
In an increasing number of cases, that situation has fundamentally transformed the relationship between public refrigerated warehouses and their customers. In effect, the warehouses that are willing to take advantage of the trend are acting almost as physical extensions of the companies they serve.
“It's about availability,” says Garry Tilburn, managing director of the U.K.- based Reed Boardall Cold Storage Ltd. At any given moment, retailers can check and see exactly what is in a warehouse or distribution center, just as if they were looking at the shelves of their own stores.
“They can and do monitor the availability not only in the regional distribution center, but also right through to the shop supermarket,” he says. With connections of this type, retailers don't just want information. They want their warehouses to take care of all the messy details involved in transporting goods. In effect, they want their warehouses to become a third party logistics provider — or at least act like one. The situation is a global one, stretching all over the developing world.
Functions that were once closely held are now being farmed out — making providers of warehousing and distribution services part of a retailer or manufacturer’s operations instead of the outsiders they once were, says Paul V. Shortt of Castlecool Limited Co. Monaghan, Ireland.
“Major food processors are outsourcing their warehousing, transportation and logistic services to PRWs. About 50% of the PRW industry is being used for this kind of consolidation,” Shortt says about what’s happening in his country. In effect, players in the cold chain are trading inventory for information, then using the information to yank once loose logistics chains increasingly tight. This is a major shift from traditional ways of doing business, according to a study called Perishable Goods Logistics: Feasibility Analysis and ICT Solutions, which was done by European organization Imonode and Gildanet
“Perishable goods are characterized by a high level of differentiation and by a high time and spatial dispersion of flows, first of all related to the variety of production areas and bodies. These traits result in extremely fragmented logistic chains,” the study found. Wherever they go, those chains are now shorter and tighter than ever before. Warehouses aren't the only organizations feeling the strain. Retailers and manufacturers themselves are radically altering the way they operate internally.
“To lower operating costs, retailers are centralizing management and control at headquarters. New information technologies — such as companywide satellite and Internet communication systems, and store checkout scanner data — enable centralization of many management activities that previously fell to store-level managers,” says a study by the U.S. Department of Agriculture called Understanding the Dynamics of Produce Markets: Consumption and Consolidation Grow.
“Timely and detailed information at headquarters also allows for effective control of operations over wide geographic areas,” the report found — and that control is translating into extensive savings and the transformation of logistics from a backwater into a primary competitive advantage.
“They have actually taken days of stock out of their warehouses by going through consolidation,” Tilburn says. “What’s happened is the retailers want to control the inward-bound leg from the stock holding point to the RDC,” he says. In some cases this ownership is translating into physical possession of the infrastructure needed to transport and store goods.
“The major retailers are building their own distribution centers and the main retailers are foreign owned and being supplied from consolidators in the U.K.,” Shortt says. Those consolidators and the efficiencies they can provide are the key way that refrigerated warehouses can stay in the cold chain, he says. Industry members say the shifts that occur grow out of long-term trends, but that have accelerated significantly in recent years.
Other benefits from consolidation are also clear. “Retailers can order just a pallet of any product at the same time, rather than ordering a full container load of the same product,” Tilburn says. “When we do consolidation, we have trailers that can hold 26 different pallets, and we can sometimes have 26 different suppliers there,” he says.
In effect, Reed Boardall is the distribution arm of some of England’s most important retailers. “We’re actually delivering into major chains — the ASDA Walmart Group, Tesco and Sainsburys — about a third of their total frozen products every day,” Tilburn says. The chains know they can reach into Reed Boardall’s systems and pluck out what they need. “We’ve developed a system to give retailers full access to customer stocks, but only with the supplier’s permission,” he says.
“A large number of PRWs have gone out of business in the past 10 years. Just 15 years ago there were 600,000 pallet positions in the PRWs in Ireland, but at present this has fallen to 275,000 pallet positions,” he says. Still, Shortt and others say it is possible for mid-sized players to compete in the consolidation marketplace.
Not everyone is happy about consolidation, but most consider the trend is unavoidable. “Consolidation is not the most ideal position, but if the market demands it then we have to respond,” Shortt says. As IARW Board Chairman, Shortt is pushing for the creation of new programs to help other members deal with the situation. He also suggests that members do everything possible to contact other members who have dealt with consolidation successfully.
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