27 Nov 2014 What does the futur hold for DSD
Specific to the grocery industry but also to other retailers, Direct Store Deliveries (DSD) is being increasingly questioned by members of the retail industry for its value in the supply chain. Initiatives like Efficient Consumer Response (ECR), Collaboration and Activity Based Costing (ABC) contribute to this industry-wide questioning. Eager to optimise their distribution fleets and warehouses, retailers are approaching manufacturers with centralised initiatives with a price reduction.
Today’s market requires from the DSD manufacturers to quantify the benefits of DSD and explain them to their counterparts. Analyses conducted by both manufacturers and retailers have to take into consideration the full spectrum of activities performed: delivery, stocking, loading the shelves, etc. Often overlooked is the realisation that most of the products going through DSD channels are highly expandable, which means that promotions and merchandising have significant impact on consumption. While a lot of recent talks on DSD revolve around discussions on delivery, DSD retailers must emphasise the effectiveness components inherent to their distribution mode such as promotional execution and expert order writing.
Viewed as a source of tremendous savings in the grocery industry, ECR initiatives does not appear to be compatible with DSD practices. Manufacturers eager to maintain their competitive advantage through DSD must now demonstrate their capacity to face the upcoming information and quick response challenges.
While “effectiveness, not just efficiency” may be the go-to-market battle cry of many DSD vendors today, operational bottlenecks are still a very real issue for both retailers and suppliers. Although many solutions are available, today’s three largest opportunities for improvement areas are:
Getting rid of non-value added activities: Tasks like back-room checking are time-consuming and costly and are the chief source of operational bottleneck;
Reducing paper proliferation: 2/3 of the paper handled in stores relate to 1/3 of the products handled;
Dealing with inaccuracies in the system: Caused by de-synchronised databases between manufacturer and retailer.
Another crucial area for improvement is time window for delivery. Retailers wanting to reduce their operational costs and cities wanting to solve urban congestion problems continuously challenge time windows and try to make them smaller. This constraint by itself is the cause of most of the Logistics costs of manufacturers as it directly impacts on the truck fleet.
While initiatives to improve the effectiveness of DSD are numerous, one appears to have greater potential: Scan Based Trading (SBT). This concept integrates the philosophy of VMI (Vendor Managed Inventory) with information exchanges captured by the Point Of Sales (POS).
Through this initiative, manufacturers are responsible of their inventory until it is being scanned at the counter. Such practice allows eliminating back door checking and also opens the door to potential 24-hour/day availability of point of sales to receive merchandise. Indeed, since retailer’s clerks are not required to acknowledge receipt of the goods, manufacturer may come at any time to deliver. The manufacturer manages inventory and the salesmen establish replenishment orders. Inventory is transferred at time of purchase by the end user.
While information exchanges between business partners are already common, challenges remain. Indeed the format of data exchanged is not always standardised and manipulations are often required by either one of the partners, as their system is not yet equipped to receive such information.
Such practice allows to considerably free-up back doors while allowing for optimised delivery routes to be built. Other approaches like audit checking (random) are also being tested to streamline processes